SHANGHAI: China's yuan was firmer against the dollar on Tuesday but gains were capped by tumbling mainland stocks, which weighed on investor sentiment and as traders awaited key US inflation data due later in the week.

The People's Bank of China set the midpoint rate at 6.3569 per dollar prior to market open, firmer than the previous fix of 6.358.

The fixing is a tad weaker than Reuters estimate of 6.3543 per dollar, which analysts say should hose down expectations of a yuan intervention.

In the spot market, the yuan opened at 6.3565 per dollar and was changing hands at 6.3599 at midday, 26 pips stronger from the previous late session close.

China could take further measures to rein in yuan

The slump in A-share markets weighed on sentiment in the foreign exchange, said a trader at a foreign bank.

China's CSI300 Index fell 2.1% after Washington on Monday said it had added 33 Chinese entities to its "unverified list", which requires US exporters to go through more procedures before shipping goods to the entities.

The dollar index clawed back some lost ground after European Central Bank President Christine Lagarde calmed market expectations for an imminent interest rate hike in the euro zone.

Investor focus now shifts to US inflation data due on Thursday for clues on the timing of a Federal Reserve interest rate hike.

"The yuan will face some depreciation pressure as corporate demand for the currency fades after the Chinese New Year holidays," China Construction Bank said in a note.

Strong corporate demand prior to the Lunar New Year holidays helped push the yuan to the highest in nearly four years.

China's foreign exchange reserves - the world's largest - unexpectedly fell to $3.22 trillion last month.

The global dollar index rose to 95.535 from the previous close of 95.399. The offshore yuan was trading at 6.3641 per dollar.