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Yuan rises to 7-month high, set for best week in six

    SHANGHAI, Aug 21 (Reuters) - The yuan on Friday edged up to
a new seven-month high before paring some gains at midday,
thanks to broad dollar weakness, and also looked set for its
best week in six.
    The dollar was on the defensive against a basket of
currencies after a rise in U.S. jobless claims and a dip
in Treasury yields dampened the appeal of holding the greenback.

    Prior to market opening, the People's Bank of China set the
midpoint at a new seven-month high of 6.9107 per
dollar, 167 pips firmer than the previous fix of 6.9274. 
    The guidance rate, the strongest since Jan. 23, was largely
in line with market projections, which could signal that the
authorities were comfortable with recent strength in the yuan,
some traders said. The fixing was 1 pip firmer compared with
Reuters' estimate of 6.9108.
    Onshore yuan opened at 6.9090 per dollar and rose
to a high of 6.8960 at one point, the loftiest level since Jan.
22. By midday, it was changing hands at 6.9100, 60 pips firmer
than the previous late session close.
    If the yuan finishes the late night session at the midday
level, it would have gained 0.58% to the dollar for the week,
the biggest weekly gain since mid-July.
    Several traders said they noticed increasing reluctance to
chase the yuan higher after it rose past 6.9 per dollar in the
morning session, prompting some profit taking.
    Tensions between Beijing and Washington remained a risk, a
trader at a foreign bank said.
    The Trump administration on Thursday declined to acknowledge
any plans to meet with China over the Phase 1 trade deal after
the China's commerce ministry said bilateral talks would be held
"in the coming days" to evaluate the agreement's progress.

    Stephen Innes, chief global markets strategist at AxiCorp,
said the yuan could strengthen to 6.85 to 6.87 per dollar if
broad dollar weakness persisted and if there was no major
escalation in the Sino-U.S. trade dispute.
    "The yuan is benefiting from stock market inflows, gradually
improving domestic economic conditions, a tinge of PBOC policy
accommodation, and the overall weaker U.S. dollar versus Asia
narrative," he said in a note.
    Chinese shares were up on Friday, with the blue-chip CSI 300
Index advancing 1.17% in morning trade.
        
    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.9107   6.9274    0.24%
                                       
 Spot yuan          6.91     6.916     0.09%
                                       
 Divergence from    -0.01%             
 midpoint*                             
 Spot change YTD                       0.77%
 Spot change since 2005                19.78%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         92.36       92.34     0.0
 Reuters/HKEX                          
 CNH index                             
 Dollar index    92.655      92.687    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
morning.

    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.9005    0.14%
        *                        
 Offshore              7.055     -2.05%
 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
Jacqueline Wong)
  
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