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Yuan inches higher after regulator sounds increased tolerance for gains

    SHANGHAI, Oct 23 (Reuters) - The yuan inched higher against
the dollar on Friday as comments by regulators appeared to show
increasing tolerance for a stronger currency.
    Investor concerns over possible central bank intervention to
rein in recent yuan gains were eased after Wang Chunying, the
spokeswoman for the State Administration of Foreign Exchange
(SAFE), said the yuan has been more stable than expected and has
maintained relatively high flexibility. 
    She expected the yuan "to remain stable at a reasonable and
balanced level".
    "While some of the comments refer to what had happened,
overall these headlines may still be taken as reflecting a lack
of discomfort over RMB strength, in particular the opinion that
there is fundamental support and that the RMB movement has been
'reasonable'," said Frances Cheung, head of macro strategy for
Asia at Westpac in Singapore.     
    Prior to the market opening on Friday, the People's Bank of
China (PBOC) set the midpoint rate at 6.6703 per
dollar, snapping a six-straight-day winning streak, and was 147
pips or 0.22% weaker than the previous fix of 6.6556. 
    Unlike slightly weaker-than-expected fixings set on
Wednesday and Thursday, Friday's official guidance came in
marginally firmer than market projections of 6.6735.
    In the spot market, onshore yuan opened at 6.6775
per dollar and was changing hands at 6.6828 at midday, 22 pips
firmer than the previous late session close.
    If the yuan finishes the late night session at the midday
level, it would have gained 0.24% for the week and appreciated
more than 6% to the dollar since late May.
     "Strong fundamental support, PBOC's explicit more tolerance
of RMB appreciation and increased flexibility, and the absence
of further escalation of U.S.-China tension in the near term
should help push CNY stronger in the remainder of this year,"
said Wang Tao, chief China economist at UBS. 
    A raft of recent data showed China's economic recovery
accelerated in the third quarter as consumers shook off their
coronavirus caution. 
    However, several currency traders pointed out that intraday
gains in the yuan were capped by corporate dollar buying, as
some commercial banks recommended their clients who have dollar
needs could purchase the greenback ahead of the Nov. 3 U.S.
presidential election.
    The global dollar index rose to 93.045 at midday,
when the offshore yuan was trading at 6.6733 per
dollar. 
    
    The yuan market at 0401 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.6703   6.6556    -0.22%
                                       
 Spot yuan          6.6828   6.685     0.03%
                                       
 Divergence from    0.19%              
 midpoint*                             
 Spot change YTD                       4.20%
 Spot change since 2005                23.85%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         95.11       95.25     -0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    93.045      92.967    0.1
 
    
    
*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The People's Bank of China (PBOC) allows the exchange rate to
rise or fall 2% from official midpoint rate it sets each
morning.

    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.6733    0.14%
        *                        
 Offshore              6.8349    -2.41%
 non-deliverable                 
 forwards                        
               **                
 
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint,
since non-deliverable forwards are settled against the midpoint.
. 
    

 (Reporting by Winni Zhou and Andrew Galbraith; Editing by Kim
Coghill)
  
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