SHANGHAI, March 30 (Reuters) - China's yuan weakened to a
four-month low against the dollar on Tuesday, with the U.S.
currency drawing support from prospects of a solid economic
recovery thanks to accelerating vaccinations and massive fiscal
stimulus.
    The strong upward momentum for the dollar is keeping the
yuan on course for its worst monthly performance since August
2019.
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at a four-month low of 6.5641
per dollar, 225 pips or 0.34% weaker than the previous fix of
6.5416. 
    The much weakened official guidance was largely in line with
market expectations and dragged the spot prices lower. The
onshore yuan opened at 6.5790 per dollar and weakened
to a low of 6.5799, the softest level since Dec. 1, 2020.
    By midday, the spot yuan was changing hands at 6.5711, 21
pips weaker than the previous late session close.
    Traders said the stronger greenback discouraged some
corporate clients from converting their dollar receipts into the
local currency. 
    A few other traders noted the safe-haven dollar gained some
support from market worries over the potential fallout from the
collapse of hedge fund Archegos Capital.
    A trader at a foreign bank said the yuan could test the
psychologically important 6.6 per dollar level.
    "Momentum remains weak for CNY which we see depreciating to
6.68 by mid-year," analysts at DBS said in a note.
    "Apart from a firmer USD globally, the CNY has been pricing
out earlier optimism that U.S.-China tensions would ease under
the Biden administration."
    Separately, index provider FTSE Russell gave final approval
on Monday for inclusion of Chinese sovereign bonds in its
flagship bond index, starting later this year, setting the stage
for billions of dollars of inflows into the world's
second-largest economy.
    Foreign capital inflows were among one of the key factors
supporting the yuan last year.
    Goldman Sachs revised up its capital inflow projections for
2021 to $150-180 billion, from $120-140 billion previously.
    "While China's lower estimated weight and much longer
scale-in period should lead to flatter inflow projections, we
note that year-to-date inflows have been much stronger than
expected with January registering inflows of $33 billion and
February of $13 billion," the investment bank said in a note.
    The global dollar index rose to 92.92 at midday,
while the offshore yuan was trading at 6.574 per
dollar. 
    
    The yuan market at 0402 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.5641   6.5416    -0.34%
                                       
 Spot yuan          6.5711   6.569     -0.03%
                                       
 Divergence from    0.11%              
 midpoint*                             
 Spot change YTD                       -0.65%
 Spot change since 2005                25.95%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         96.53       96.67     -0.2
 Reuters/HKEX                          
 CNH index                             
 Dollar index    92.92       92.903    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
morning.
    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.574     -0.04%
        *                        
 Offshore              6.7588    -2.88%
 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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