Yuan barely budges as central bank holds steady this week

SHANGHAI (Reuters) - China's yuan barely moved against the dollar on Friday and was set to end this week flattish, with dealers slightly reducing bearish positions against the yuan and the central bank keeping daily guidance rates in a tight range. "Trading was relatively tepid this week as the spot rate barely moved," said a trader at a Chinese city bank in Shanghai. "Trading volume averaged around $15 billion this week." Daily trading volume stayed above $20 billion last week and once touched $38 billion on Jan. 7. The People's Bank of China set the midpoint rate at 6.5572 per dollar prior to market open, only 0.02 percent firmer than the previous fix at 6.5585. The guidance rate was kept within a tight range of 25 pips over the past week. The spot market opened at 6.5797 per dollar and was changing hands at 6.5800 at midday, almost unchanged from the previous close. The yuan is set to post a mild weekly loss of 0.1 percent if it closes at the midday level. Bearish positions on the Chinese currency eased slightly in the last two weeks, a Reuters poll showed, as markets were wary of central bank intervention after it ramped up efforts to stabilize a faltering currency. ING issued a research note which stuck by its forecast that the yuan would weaken to 6.72 per dollar by mid-year, and recover to 6.60 by the year-end. "We expect tighter exchange controls and macroprudential measures to enable the authorities to do that and curb depreciation pressure while cutting interest rates," ING wrote in the note. ING also noted that earlier this month Li Daokui, an economist at Tsinghua University and former member of the PBOC MPC, said foreign reserves needed to be kept above $3 trillion. China's foreign exchange reserves posted their biggest annual drop on record in 2015, falling to $3.33 trillion. The fall was partly due to capital outflows sparked by weakness of the Chinese currency, and concern over the economy's slowdown. "A hard landing is practically unavoidable," Billionaire investor George Soros said on Thursday from Davos. "I'm not expecting it, I'm observing it. China can manage it. It has resources and greater latitude in policies, with $3 trillion in reserves." On Friday, the offshore yuan was trading at 6.6110 per dollar, 0.47 percent softer than onshore. Traders said the spread between the onshore and offshore markets was "acceptable". The onshore yuan strengthened 0.5 percent against the euro to 7.1368. It also firmed 0.8 percent against the Japanese yen , hovering at 5.5855 to 100 yen. (Reporting by the Shanghai Newsroom; Editing by Simon Cameron-Moore)