MNI CHINA MARKETS: Yuan Stronger; Rates Mixed; SH Stocks Down

     BEIJING (MNI) - The Chinese yuan strengthened to 6.3290 against the U.S.

dollar from Tuesday's 6.3415 closing, following today's weaker fixing.  

     PBOC set the yuan central parity rate vs the U.S. dollar at 6.3339 on

Wednesday, weaker than Tuesday's 6.3312. Today was the second consecutive day

that the central bank set the rate weaker, following seven trading days of

stronger fixings.

***COMMENT: As the dollar index recovered slightly from its recent considerable

drop, the yuan experienced fluctuations. However, the market is still positive

about the yuan outlook. 

     Interbank market rates fell Wednesday after PBOC drained net CNY210 billion

as it refrained from conducting open-market operations. 

 - 7-day repo average last at 2.8008%, lower than 2.8993% yesterday 

 - Overnight repo average 2.5821%, up from 2.5154% yesterday. 

***COMMENT: Today is the fifth trading day that the central bank skipped

conducting OMOs. 

 - Liquidity in the interbank market in the short run is not very tight, but it

would be tighter as cash withdrawals would hike ahead of China's Lunar New Year

next month. 

 - Financing costs in the non-bank market could be affected by the PBOC's window

instruction for some banks to stop giving overnight funding to non-bank sectors,

though more observation is needed.

     The yield on 10-year China government bonds last traded 3.9150%, down from

3.9300% at Tuesday's close: Wind Information. 

The Shanghai Composite Index was last 0.42% lower at 3,473.36, while Hong Kong's

Hang Seng Index fell 0.37% to 32,486.84.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI Beijing Bureau; +86-10-8532-5998; email: beijing@marketnews.com

[TOPICS: M$A$$$,M$Q$$$,M$$FI$,MN$FI$,MN$FX$]