SHANGHAI: The yuan closed up against the dollar on Tuesday even after the People's Bank of China set a slightly weaker mid-point, and its value is expected to remain stable in the near term.
But dealers said the Chinese currency may have little room to rise further following the euro's gains after euro zone finance ministers clinched a second bailout deal for Greece on Tuesday.
The yuan's value is calculated against an undisclosed basket of currencies which includes the dollar, euro and yen among other currencies of its trading partners.
"The yuan's direction is largely linked to the overseas market for now," said a dealer at a European bank in Shanghai. "But further appreciation still depends on its own economic situation."
The world's second-biggest economy faces a fifth successive quarter of slowing growth. On the weekend, China cut the amount of cash banks must hold in reserves in a bid to crank up credit creation.
Market participants still expect the yuan to likely move around 6.30 per dollar in the near term as Europe's debt crisis caps the euro and the US currency hovers at a low level.
The government appears intent to keep the Chinese currency stable amid global economic weakness.
Spot yuan finished at 6.2964 versus the dollar, compared with Monday's close of 6.3017 after the central bank fixed the mid-point at 6.2960 against Monday's 6.2938. The yuan has risen 8.41 percent since its June 2010 de-peg.
The PBOC has set the mid-point in a narrow range since last week after letting it hit an all-time high of 6.2937 per dollar on Feb. 10, which markets construed as a goodwill gesture to the United States ahead of Chinese leader-in-waiting Xi Jinping's visit to that country last week.
In the offshore non-deliverable forwards (NDF) market, the benchmark one-year NDFs implied yuan appreciation of 0.27 percent late on Tuesday, lower than 0.33 percent implied on Monday.
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