Traders said they were uncertain whether the state banks clients were reducing dollar deposits because of reduced interest rates, or the central bank was behind the move.
Spot yuan closed at 6.3038 per dollar, its strongest close since April, having retreated from an intraday peak of 6.2945, its strongest since February, in the afternoon session as the dollar gained in global markets.
The central bank had set its daily mid-point fixing at 6.3380 on Thursday, barely stronger than Wednesday's fix, which made the sudden burst of dollar selling by the big four state banks more perplexing for some traders.
"We were taken a bit off-guard. A few banks started dumping dollars. It was strange because the midpoint price was fairly stable," said a trader at a bank in Shanghai. "It seems a few banks have big dollar positions they want to clear."
Onshore dollar deposits grew rapidly through July this year, as global safe-haven demand and the prospect of yuan depreciation persuaded many Chinese export firms against converting dollars received, as they had in previous years.
But dollar deposit growth slowed in August, as the yuan's fortunes improved and the glut of dollars onshore pushed down dollar deposit rates, making such deposits less attractive.
Some traders say September could see the first monthly decline in dollar deposits of the year, as firms reduce their dollar holdings.
Others traders suspected that today's dollar selling was driven by the central bank, though it was unclear why the People's Bank of China should actively push the yuan stronger, as it has strengthened over the past seven weeks and had closed at a four-month high on Wednesday.
There was also speculation in the market over the timing of the upcoming Communist Party congress, which will usher in China's once-in-a-decade leadership transition.
If it is called for early in October it would indicate relative stability and unity among the top leadership, which would inspire confidence in the Chinese economy in general, and raise hopes for reforms that could open up China's financial markets to greater foreign investment.
"Announcing the dates would mean that things have settled down at the top," said one bank dealer. "That means that maybe some policies could be on the way."