[SHANGHAI] China's yuan firmed on Monday as state-owned banks sold dollars to keep the currency stable after the Chinese central bank sharply weakened its official fixing, two traders told Reuters.

The People's Bank of China set the midpoint rate at 6.6908 per dollar prior to market open, the weakest since Aug 31, and softer than the previous fix of 6.6684.

As the official guidance rate neared the psychologically-important threshold of 6.7 per dollar, traders said state-owned banks were offering dollars on behalf of the PBOC to pull the yuan back to around 6.68, in fear of a too rapid descent.

"The central bank is trying to stabilise the yuan at around 6.68, as once the yuan breaches the 6.7 level, 6.8 is just around the corner," said a trader at a Chinese bank in Shanghai.

REUTERS