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Yuan flat before Fed outcome, wary on Huarong developments

    SHANGHAI, April 27 (Reuters) - China's yuan was largely
steady against the dollar on Tuesday as most investors were
reluctant to make any bets before the outcome of the U.S.
Federal Reserve's policy meeting due later this week.
    While the Fed is not expected to alter policy at its two-day
meeting which ends on Wednesday, the focus will be on comments
from Chairman Jerome Powell as he's likely to face questions
over whether improving conditions warrant a withdrawal of
monetary easing.
    Some market participants say developments around Chinese
state-owned bad loan giant China Huarong Asset Management Co
 have also lent a cautious air to yuan trading.
    Prior to the market opening, the People's Bank of China
(PBOC) set the midpoint rate at 6.4924 per dollar, 11
pips weaker than the previous fix of 6.4913. 
    In the spot market, the onshore yuan opened at
6.4830 per dollar and then swung between gains and losses before
changing hands at 6.4867 at midday, 2 pips weaker than the
previous late session close.
    Activity was mostly subdued although traders were also
keeping a wary eye on Huarong.
    Offshore bonds issued by subsidiaries of Huarong fell on
Tuesday, after Fitch Ratings downgraded the parent company, even
as Huarong companies met deadlines on debt repayment.

    "While the PBoC is expected to lend support to the
state-owned bad-assets company, the issue will probably still
cast a shadow over China's economic recovery and financial
market stability," said Ken Cheung, chief Asian FX strategist at
Mizuho Bank in Hong Kong.
    Broader market concerns were still evident on Tuesday as the
cost to insure against defaults on China's dollar debt ticked
higher.
    "The bottom line is that policymakers appear to be cleaning
house at the same time it is encouraging deleveraging and
rebalancing," Brown Brothers Harriman said in a note.
    "That is a lot of balls to juggle and the law of unintended
consequences suggests investors should remain on alert."
    By midday, the global dollar index rose to 90.967
from the previous close of 90.885, while the offshore yuan
 was trading at 6.4818 per dollar. 
    
    The yuan market at 0402 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.4924   6.4913    -0.02%
                                       
 Spot yuan          6.4867   6.4865    0.00%
                                       
 Divergence from    -0.09%             
 midpoint*                             
 Spot change YTD                       0.64%
 Spot change since 2005                27.59%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         96.68       96.55     0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    90.967      90.885    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    6.4818    0.08%
        *                        
 Offshore              6.6574    -2.48%
 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 Shri Navaratnam)
  
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