[HONG KONG] China's yuan rose to the highest level in nearly three weeks against the US dollar on Tuesday, led by the central bank's stronger fix as authorities took the opportunity of a weaker greenback to consolidate efforts to support its battered currency.

Based on the morning trade, the yuan was poised for its biggest daily gain in four months.

The People's Bank of China set the midpoint rate at 6.8575 per US dollar prior to market open, 0.43 per cent firmer than the previous fix at 6.887.

The fix was higher than market expectations even with a broadly weaker US dollar, and was the strongest percentage gain in six month.

In recent weeks, China has stepped up measures to stem capital outflows after the yuan skidded to more than eight-year lows, taking aim at outbound investments that have soared to a record high.

The focus for markets is on the November forign exchange reserves data due on Wednesday. Analysts polled by Reuters expect they fell US$30 billion last month to US$3.091 trillion, the lowest since early 2011.

The spot market opened at 6.8640 per US dollar and was changing hands at 6.8684 at midday, -146 pips away from the previous late session close and 0.16 per cent away from the midpoint.

The spot rate is currently allowed to trade with a range 2 per cent above or below the official fixing on any given day.

"The yuan market is quiet today and banks are just squaring some of their positions near the end of the year," said a trader at a Chinese bank in Shanghai.

"Big state-owned banks are offering dollars, so the yuan is likely to stay around this level in the near term. We'll wait for the yuan to appreciate a bit more to see if there's any chance to buy some dollars," the trader said.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.55, weaker than the previous day's 95.91.

The US dollar held near a three-week low against a basket of six major currencies. On Monday it had slipped to as low as 99.849, its weakest level since Nov 15.

The offshore yuan was trading -0.10 per cent away from the onshore spot at 6.8754 per US dollar.

Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 7.089, -3.27 per cent away from the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.

REUTERS