The yuan was at 6.2227 versus the dollar near midday, slightly firmer from Tuesday's close of 6.2241 and just shy of its record high of 6.2223 from late November.
The central bank set its midpoint at 6.2814, a touch weaker than Tuesday's fix of 6.2804, which was the strongest in eight months.
Traders interpreted the strong fix on Tuesday as a possible signal that the People's Bank of China (PBOC) may be willing to allow the yuan to rise in the first quarter of 2013, following several months during which the PBOC had used its midpoint to prevent significant appreciation.
The PBOC allows the exchange rate to rise or fall by no more than 1 percent from the midpoint it sets each morning.
Wednesday's midpoint, though slightly weaker, was still the second-strongest since May 2012. Prior to Tuesday, the PBOC had held the midpoint within a tiny range of less than 100 pips - or 0.15 percent - since the beginning of December.
The midpoints on Tuesday and Wednesday suggest the PBOC may now be comfortable with moderate appreciation over the next few weeks, though traders cautioned that two days was still too small a sample to draw definitive conclusions.
Still, the offshore market appears to be anticipating further yuan gains. Offshore yuan has been trading at a significant premium to the onshore rate since late November.
Traders say yuan demand continues to be strong, and appreciation pressure remains significant, though the corporate preference for yuan over dollars is no longer as severe as in November and early December, when the yuan hit its top-end limit for 31 out of 34 trading sessions.
That deadlock decimated trading volumes, as dollar bids were nowhere to be seen. The deadlock only ended in mid-December, when the PBOC, acting through major state banks, apparently stepped in to act as dollar buyer of last resort. That restored liquidity to the market, pulling the yuan weaker and clear of the 1 percent band limit.
Traders say that since mid-December the PBOC has reduced but did not completely halt its interventions. State banks still appear to be buying dollars as necessary to keep the yuan away from the top-end limit, the say.
But the stronger midpoints recently have reduced the need for such intervention, since they allow the spot rate more room to strengthen without hitting the band.