Chinese yuan eases after regulator warned of possible actions to counter higher swings

    SHANGHAI, Oct 22 (Reuters) - China's yuan lost some strength
against the dollar on Friday after the FX regulator warned of
possible action if the currency market is hit by greater
fluctuations, but was still on course for its biggest weekly
gain since May despite the setback.
    Wang Chunying, spokesperson for the State Administration of
Foreign Exchange (SAFE), said "if the foreign exchange market
faces relatively big fluctuations, (regulators) will roll out
counter-cyclical adjustments at an appropriate time."
    She said China's authorities were watching closely for
bigger fluctuations due to policy tightening by major world
    The SAFE comments prompted some speculators to withdraw bets
on the yuan testing highs, and traders said Chinese authorities
could be signalling some discomfort over the yuan's strength.
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at 6.4032 per dollar, 142 pips
or 0.22% weaker than the previous fix of 6.3890. 
    In the spot market, onshore yuan opened at 6.3921
per dollar and was changing hands at 6.3985 at midday, 65 pips
weaker than the previous late session close.
    The yuan touched a high of 6.3794 per dollar on Wednesday,
the strongest level since June 2.
    If the yuan finishes the late night session at the midday
level, it would still have gained about 0.6% to the dollar for
the week, for the best weekly performance since late May.
    Back then, a sharp rally in the yuan prompted the central
bank to raise the FX reserve requirement ratio for financial
institutions to 7% from 5% to stem gains.
    "Clearly, the pace of RMB appreciation remains a concern for
the authorities," Terence Wu, FX strategist at OCBC Bank said in
a note.
    "Nevertheless, so long as the services deficit on the BOP
does not return, we may not see the RMB come under sustained
    Separately, highly-indebted China Evergrande Group's
 found funds to pay interest on a U.S. dollar bond,
according to a source, lifting sentiment and briefly supporting
the yuan in initial trade, traders said.
    The offshore yuan rose to a high of 6.3870 before
trading at 6.3954 per dollar by midday.
    The broad dollar index fell to 93.721 from the
previous close of 93.741. 
    The yuan market at 0409 GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.4032   6.389     -0.22%
 Spot yuan          6.3985   6.392     -0.10%
 Divergence from    -0.07%             
 Spot change YTD                       2.03%
 Spot change since 2005                29.35%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         100.44      100.38    0.1
 CNH index                             
 Dollar index    93.721      93.741    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    6.3954    0.05%
 Offshore              6.5823    -2.72%
*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)

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