Spot yuan was trading at 6.3399 per dollar at midday, up from Monday's close of 6.3407. In intraday trading, it hit a high of 6.3359, its strongest level since May 24.
The spot yuan also traded above the midpoint of the central bank's fix for a second consecutive day. The last time that happened was in mid-May.
Before trading began, the People's Bank of China (PBOC) fixed its daily midpoint at 6.3402, slightly stronger than Monday's 6.3415 -- in line with the dollar weakening in global markets -- but also reflecting the central bank's intention to keep the yuan relatively stable, traders said.
DOLLAR-BUYING ABATES
Until recently, Chinese companies preferred to retain dollars over yuan as China's economic growth slowed sharply amid global economic weakness.
For much of 2012, strong dollar demand had caused the yuan to ease and in late July, as the dollar struck a two-year high on its index against major currencies, the yuan stood 1.6 percent weaker than it started the year.
But since then, the yuan has recovered some ground, to stand 0.7 percent down in the year to date.
"Corporations have recently become less interested in dollars due to the dollar's weakness in global markets," said a trader at a Chinese state-owned bank in Beijing.
"A rough balance of dollar supply and demand is likely to keep the yuan largely stable in the near term."
Traders expect spot yuan to move in a range of 6.33 to 6.38 percent in coming weeks in the absence of fresh market developments.