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China's yuan ends firmer, denies it is stabilising currency

China's spot yuan finished firmer on Monday as state-owned banks sold dollars, traders said, but the central bank doused market speculation it had tried to stabilise the Chinese currency.

Two traders had told Reuters that state banks sold dollars after the Chinese central bank sharply weakened its official fixing. The People's Bank of China (PBOC) occasionally acts through state banks.

The PBOC set the midpoint rate at 6.6908 per dollar prior to market open, the weakest since Aug. 31, and softer than the previous fix 6.6684.

As the official guidance rate was set near the psychologically-important threshold of 6.7 per dollar on Monday, traders said state-owned banks offered dollars which pulled the yuan back to around 6.68.

Traders said the central bank probably acted through state banks to help stabilise the currency, but the PBOC late on Monday said the market's view was not correct.

Reports it had relied upon foreign exchange sales by state-owned banks to stabilise the yuan are "not factual", the PBOC said in an emailed statement.

Earlier in the session, a trader at a Chinese bank in Shanghai said: "The central bank is trying to stabilise the yuan at around 6.68, as once the yuan breaches the 6.7 level, 6.8 is just around the corner."

Chinese authorities are reluctant to see the yuan breach 6.7 to the dollar, traders say. When it dipped below that level in mid-July, state-owned banks were believed to have aggressively sold dollars to prop up the currency.

China's central bank could tolerate a fall in the yuan to as low as 6.8 per dollar in 2016 to support the economy, which would mean the currency matching last year's record decline of 4.5 percent, policy sources said.

The spot market closed at 6.6799 to the dollar, according to China's official foreign exchange trade platform, which is known as The closing price was 31 pips stronger than the previous late session close and 0.16 percent weaker than the midpoint. Spot yuan hit 6.6835 at one point intraday.

China takes the official market closing price at 4:30 p.m. (0830 GMT) into consideration when it fixes the official guidance rate, in an effort to let market forces play a bigger role in determining the yuan's value. The market also has a special evening session lasting until 11:30 p.m.

Fan Gang, a member of China's central bank monetary committee, told media last week that China should use moderate controls to allow gradual yuan depreciation.

Traders said Fan's remarks meant the central bank would gradually reduce intervention in the foreign exchange market, and his comments may only represent his own thoughts.

"I don't think China's central bank would release such a signal of the yuan's depreciation to the market," said another trader at a Chinese bank in Shanghai, who also said state-owned banks had sold dollars in a move to apparently support the yuan.

Traders said another disturbance in the market was rising speculation that the U.S. Federal Reserve was preparing to raise interest rates.

The offshore yuan was trading 0.16 percent weaker than the onshore spot at 6.6905 per dollar.

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 6.8695, 2.60 percent weaker than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.

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