Yuan retreats from March highs as dollar regains footing

    HONG KONG, Aug 6 (Reuters) - The yuan eased from five-month
highs on Thursday as the struggling greenback regained some
ground on hopes U.S. lawmakers will soon agree to an economic
stimulus package, taking a breather after two sessions of gains.
    The onshore yuan softened 0.1% to 6.9429 per
dollar by midday, while its offshore counterpart was
flat at 6.9420, after reaching their firmest since March on
Wednesday amid U.S. dollar weakness.
    A gloomy outlook for the U.S. economy has kept the greenback
 near two-year lows. But signs of compromise among U.S.
lawmakers for a fiscal stimulus helped it stabilise in Wednesday
trade. The U.S. Treasury also said it would borrow $270 billion
more than previously estimated.
    Expectation that the dollar's slide is bottoming out took
some shine off the yuan, said two traders in Shanghai.
    "The dollar has already weakened a lot, and the new fiscal
stimulus may come in August, so it can't go much lower from
here," said Xing Zhaopeng, market economist at ANZ in Shanghai.
    Foreign investors trading A-shares through Hong Kong's Stock
Connect were net sellers on Thursday, according to data from the
Hong Kong exchange. Shanghai shares fell 0.4%.
    Trade tensions lurked in the background. U.S. and Chinese
officials will review the implementation of their Phase 1 trade
deal during an Aug. 15 video call, just as Washington steps up
its campaign to purge Chinese apps.
    "No one expects this meeting to ease the heightened
tensions between the world's two largest economies, not with the
U.S. elections just three months away in November," DBS analysts
said in a note.
    They see the yuan staying on the stronger side of that
handle before Aug. 15.
    Given the market's low expectations on the outcome of the
meeting, the traders said the yuan could firm and test 6.9
should the two sides show signs of commitment to the deal.
    The People's Bank of China set the midpoint at
6.9438 prior to market open, the strongest since March but close
to the Reuters estimate of 6.9464.

    The yuan market at 0402 GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.9438   6.9752    0.45%
 Spot yuan          6.9429   6.935     -0.11%
 Divergence from    -0.01%             
 Spot change YTD                       0.29%
 Spot change since 2005                19.21%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         91.7        91.78     -0.1
 CNH index                             
 Dollar index    92.763      92.777    0.0
*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

 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.942     0.01%
 Offshore              7.0872    -2.02%
*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 Noah Sin; Editing by Jacqueline Wong)