Yuan largely flat, tighter cash conditions offset disappointing economic data

    SHANGHAI, May 17 (Reuters) - China's yuan traded largely
flat against the dollar on Monday, as support from a firmer
official currency guidance rate and tighter cash conditions in
interbank markets made up for weakness from disappointing
economic activity indicators.
    Traders said investors continued to look for clues on where
to put their money from major central banks' stances on currency
policy outlooks. 
    They said China's central bank has not yet shown a clear
attitude following recent data and liquidity operations, while
markets would switch attention to the U.S. Federal Reserve's
latest minutes - due on Wednesday - as the hunt for pointers
switches to the Fed's thinking.
    Prior to the market opening, the People's Bank of China
(PBOC) set the midpoint rate at 6.4307 per dollar,
218 pips or 0.34% firmer than the previous fix of 6.4525. 
    In the spot market, onshore yuan opened at 6.4420
per dollar and was changing hands at 6.4383 at midday, 8 pips
weaker than the previous late session close.
    Traders said activity indicators continued to reflect an
unbalanced economic recovery, piling pressure on the yuan as
fundamentals of the economy remain the key factor influencing
the currency.
    China's factory output growth slowed in April from the jump
seen in the previous month, while retail sales missed analyst
expectations, indicating more pressure on the recovery in
    "Continued weak domestic demand momentum would create a
dilemma for policymakers, as it will lead to pressure to pursue
a more pro-growth macro policy that could increase financial
risks and leverage," Louis Kuijs, head of Asia economics at
Oxford Economics, said in note.          
    Meanwhile, the weakness was offset by signs of liquidity
tension in the money markets ahead of the monthly tax payment
due later this week.
    The volume-weighted average rate of the benchmark overnight
repo traded in the interbank market, rose to 2.13%
in morning trade, the highest level since April 30.
    Separately, the PBOC injected 100 billion yuan ($15.54
billion) worth of one-year medium-term lending facility (MLF)
loans to some financial institutions, rolling over the same
amount of maturing loans while keeping interest rate unchanged
for the 13th straight month.
    By midday, the global dollar index rose to 90.4 from
the previous close of 90.295, while the offshore yuan
was trading at 6.4415 per dollar. 
    The yuan market at 0400 GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.4307   6.4525    0.34%
 Spot yuan          6.4383   6.4375    -0.01%
 Divergence from    0.12%              
 Spot change YTD                       1.40%
 Spot change since 2005                28.55%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         97.44       97.54     -0.1
 CNH index                             
 Dollar index    90.4        90.295    0.1
*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The PBOC allows the exchange rate to rise or fall 2% from
official midpoint rate it sets each morning.

 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.4415    -0.05%
 Offshore              6.6068    -2.67%
*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
Kenneth Maxwell)