SHANGHAI, Oct 19 (Reuters) - The yuan weakened on Monday, pulling back from early gains after new data showed China's economy grew at a slightly slower-than-expected pace in the third quarter, but traders and analysts said broader economic trends continued to support the currency. China's recovery accelerated in the third quarter, but overall gross domestic product growth of 4.9% missed forecasts, highlighting continued challenges facing the world's second-largest economy as it emerges from the coronavirus crisis. Traders said they saw some dollar buying when the data came in below forecast, but expectations of a stable, strengthening yuan limited the Chinese currency's fall. "There was some dollar buying front-running the data release, but the data had a small impact on the exchange rate," said a trader at a Chinese bank. "I expect the yuan to continue to trade in a range. There's still support for USDCNY at the March 2019 low." The People's Bank of China set the midpoint of the yuan's daily trading band at 6.701 per dollar on Monday, its firmest level since April 18, 2019, after the yuan finished its onshore session at an 18-month peak on Friday. Spot yuan opened at 6.6930 per dollar and strengthened to a top of 6.6857 before the data release. At midday, it was changing hands at 6.7005 per dollar, 15 pips weaker than its late session close on Friday. The offshore yuan was little changed at 6.696 per dollar. Traders and analysts say that the policy gap between China and the rest of the world as its economy recovers would continue to support factors benefitting the yuan, including rising foreign interest in Chinese bonds. "The likely continuation of prudent monetary policy will likely sustain the fairly significant interest rate differential we see between China and many other parts of the world. And that significant interest rate differential ... is likely to continue to drive inflows into both China government bonds and increasingly into China credits more broadly," said Ben Powell, Asia Pacific chief investment strategist at the BlackRock Investment Institute in Singapore. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.8579 on Monday. The yuan market at 4:09AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.701 6.7332 0.48% Spot yuan 6.7005 6.699 -0.02% Divergence from -0.01% midpoint* Spot change YTD 3.92% Spot change since 2005 23.52% revaluation Key indexes: Item Current Previous Change Thomson 95.28 95.26 0.0 Reuters/HKEX CNH index Dollar index 93.751 93.699 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 6.696 0.07% * Offshore 6.8579 -2.29% 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 Andrew Galbraith and Jindong Zhang; Editing by Simon Cameron-Moore)
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