The world's largest economies will resume trade talks in Washington this week, following week-long negotiations in Beijing that both countries said had led to some progress.

"The main driver (for yuan appreciation) is the US-China talks. The result of that, which includes starting another round (of talks) this week, is really beyond market expectation," said a Shanghai-based trader with a Chinese bank.

Trump told reporters on Friday there was a possibility that he would grant an extension to the March 1 deadline, helping to tame fears of an escalation in the trade conflict. US tariffs on $200 billion in imports from China are set to rise to 25 percent from 10 percent if no deal is reached by March 1.

By 0345 GMT, spot yuan was changing hands at 6.7558 at midday, 192 pips stronger than the previous late session close and 0.15 percent firmer than the midpoint of the yuan's trading band.

The People's Bank of China set the daily midpoint rate at 6.7659 per dollar prior to market open, weaker than the previous fix of 6.7623.

But traders say support for the yuan hinges on the forthcoming talks, as officials on both sides fell short of "announcing anything material last week. This week is very important," said a second trader in Shanghai, who works at a foreign bank.

Carie Li, an economist at OCBC Wing Hang Bank in Hong Kong, cautioned that the deadline extension is not yet set in stone. "There will be resistance (against strengthening) in the 6.70 region," she said.

A weaker US dollar lent the yuan additional support, said the traders. The greenback fell on dovish comments from several US Federal Reserve policymakers as a slowing US economy reduces the need for the US central bank to raise rates, and as hopes for a trade deal boosted investors' appetite for riskier assets.

The global dollar index fell off its Friday high of 97.368 to 96.721 by 0345 GMT on Monday.

With Beijing and Washington locked in ongoing talks, domestic economic and credit data will likely take a backseat in influencing the yuan's movements.

China's banks made the most new loans on record in January, official data showed last week, as policymakers tried to boost growth, while producer prices slowed for a seventh straight month, raising deflation fears.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.81, firmer than the previous day's 94.67.

The offshore yuan was trading 0.1 percent weaker than the onshore spot at 6.7625 per dollar.