By Georgina Lee
       HONG KONG, Aug 18 (Reuters) - China's yuan firmed
against the dollar on Friday from a more than nine-month low
earlier in the week after the central bank  set the daily fixing
much higher than expected, keeping the currency buoyant and
trading in a tight range. 
    The People's Bank of China set the midpoint rate,
around which the yuan is allowed to trade in a 2% band, at
7.2006 per U.S. dollar prior to market open, firmer than the
previous fix 7.2076 and more than 1,000 pips stronger than
Reuters' estimate - the largest deviation seen this year.
    The higher-than-expected fixing showed the central bank is
focused on ensuring the yuan does not fall too low versus the
dollar, analysts said. Market participants widely take it as an
official sign of authorities' rising discomfort with the yuan's
weakness.
    The spot yuan opened at 7.2721 per dollar and was
changing hands at 7.2740 in the early trading session, 148 pips
stronger than the previous late session close and 1.02% weaker
than the midpoint. 
    The offshore yuan was trading 0.20% weaker than the
onshore spot at 7.2883 per dollar. 
    China will also prevent overshooting risks of the yuan
exchange rate and fend off systemic financial risks, the central
bank said in its second-quarter monetary policy implementation
report on Thursday. 
    Policy makers have vowed to ensure a stable yuan exchange
rate.
    The support from the central bank in the daily fixing,
through a tweak known as the counter-cyclical factor, also came
after Reuters reported on Thursday that China's major
state-owned banks were seen busy selling dollars to buy yuan in
both onshore and offshore spot foreign exchange markets.
    Taken together, Citi expects more tools will be redeployed
by the central bank to further rein in the yuan's slide. 
    "This would be a step up from using the counter-cyclical
factor in the CNY fix. The foreign exchange reserve requirement
ratio was last cut in September 2022. However, we think
authorities are concerned about the pace of depreciation rather
than the direction itself," said Citi analysts in a client note
on Friday. 
    Both MUFG and HSBC expect the yuan to reach 7.1 per dollar
by end of 2023, while BNP Paribas expects the yuan to still
strengthen to 6.95 per dollar. 
    The dollar index fell to 103.252 from the previous
close of 103.572. 
   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 7.0698, 1.85% away from the midpoint.
    One-year NDFs are settled against the midpoint, not the spot
rate.

    The yuan market at 1:58AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint                         
                                        0.10%
                    7.2006   7.2076    
                                       
                                       
 Spot yuan                             
                                        0.20%
                    7.274    7.2888    
                                       
                                       
 Divergence from                       
 midpoint*                             
                    1.02%              
 Spot change YTD                       
                                        -5.14%
 Spot change since 2005                
 revaluation                            13.78%
 


    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan              
        *                        -0.20%
                       7.2883    
                                 
                                 
 Offshore                        
 non-deliverable                 1.85%
 forwards              7.0698    
               **                
                                 
 
*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 Georgina Lee; Editing by Sonali Paul)