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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