SHANGHAI, Sept 30 (Reuters) - The yuan inched up against the dollar on Wednesday, underpinned by upbeat manufacturing data, with the Chinese unit on course for its best quarter since the global financial crisis in 2008. China's factory activity extended solid growth in September, according to both official and private surveys, as the nation's crucial exports engine revved up on improving overseas demand and also underlined a steady economic recovery from the coronavirus shock. The country's vast industrial sector is steadily returning to levels seen before the pandemic paralysed huge swathes of the economy early this year. Apart from the sound economic fundamentals, a broadly weaker dollar and continued capital inflows also supported the Chinese currency. Spot yuan opened at 6.8115 per dollar before easing to 6.8120 at midday. If it retains all the gains at late-night close, the Chinese unit would have gained 3.71% to the dollar between July and September, marking the best quarter since the first quarter of 2008. "With the confidence that RMB appreciation is no longer associated with one-way flows, herd mentality and speculative behaviour, we believe the PBOC will continue with FX reforms, including RMB internationalisation," HSBC said in a note, expecting the yuan to end the year at 6.70 per dollar and rise further to 6.60 at end-2021. As the market is about enter a week-long National Day holiday, many market participants liquidated their positions and refrained from betting either side of the currency due to uncertainty from overseas markets, traders said. China's financial markets will be shut from Oct. 1-8, while trade will resume on Oct. 9. Some investors said one of the biggest market risks could yield from the U.S. presidential campaign, although the first debate between President Donald Trump and Democrat Joe Biden offered little clues on their China policy agenda. Separately, tighter cash condition in the interbank market also propped up the yuan. Forwards climbed to the highest in more than three years on morning trade, as liquidity demand jumped ahead of the Golden Week holiday. The People's Bank of China set the midpoint rate at 6.8101 per dollar, 70 pips firmer than the previous fix of 6.8171. The yuan market at 0403 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.8101 6.8171 0.10% Spot yuan 6.812 6.8149 0.04% Divergence from 0.03% midpoint* Spot change YTD 2.22% Spot change since 2005 21.50% revaluation Key indexes: Item Current Previous Change Thomson 93.98 94.02 0.0 Reuters/HKEX CNH index Dollar index 93.96 93.867 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 6.8154 -0.05% * Offshore 6.973 -2.34% 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 Sherry Jacob-Phillips)
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