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Yuan Snaps Four-Day Loss on Stronger Fixing as U.S. Talks Resume

Dec. 28 (Bloomberg) -- China’s yuan strengthened as the central bank raised the currency’s fixing for the first time in seven days before U.S. lawmakers resume budget negotiations.

The People’s Bank of China bolstered the reference rate by 0.08 percent, the most since Nov. 12, to 6.2896 per dollar. U.S. President Barack Obama plans to meet with Democratic and Republican congressional leaders at the White House today in an attempt to avert at least $600 billion in spending cuts and tax increases that take effect in January. The Shanghai Composite Index of shares rose 1.2 percent today, taking its advance this month to 13 percent, the most since July 2009.

“The trade and investment demand for yuan and Chinese assets has steadily increased, providing support to the currency,” said Bruce Yam, a currency strategist at Sun Hung Kai Financial Ltd. in Hong Kong. “No politician could afford to derail a recovery in the world’s largest economy, so risk appetite has improved on hopes that it’ll be solved.”

The yuan rose 0.04 percent to close at 6.2335 per dollar in Shanghai, according to the China Foreign Exchange Trade System. That is 0.9 percent stronger than the central bank’s fixing, within the maximum allowed divergence of 1 percent. The currency fell 0.06 percent this week, paring this year’s gain to 0.97 percent.

One-month implied volatility, a measure of expected moves in exchange rates used to price options, was unchanged at 1.8 percent today and has declined 93 basis points, or 0.93 percentage point, this year.

The People’s Bank of China issued rules allowing companies in the Qianhai district in Shenzhen to borrow yuan from banks in Hong Kong, according to a statement yesterday.

In Hong Kong’s offshore market, the yuan climbed 0.1 percent to 6.2238 per dollar, limiting this week’s decline to 0.04 percent, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards were steady at 6.3340 today, a 1.6 percent discount to the onshore spot rate.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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