SHANGHAI: The yuan ended down slightly against the dollar on Friday as the U.S. currency rallied, though traders said a relatively strong central bank midpoint kept losses in check. The dollar index, which tracks the greenback's value against a basket of major currencies dominated by the euro, stayed near a two-year high of 83.829 hit the day before as concerns about a slowing global economy prompted investors to seek safety. But the People's Bank of China (PBOC) appears to be determined to keep the yuan largely stable, fixing its daily midpoint at 6.3247 per dollar on Friday, only slightly weaker than 6.3215 the day before. The midpoint is the base rate from which the central bank allows the yuan to rise or fall 1 percent in a single day. "GDP data published today showed China's economy grew in line with market expectations in the second quarter despite a slowdown, permitting the PBOC to stick to the government's long-standing policy of a stable yuan," said a trader at an Australian bank in Shanghai. "Slowing capital inflows also underline the need for the PBOC to maintain a relatively stable exchange rate for now." Spot yuan closed at 6.3789 per dollar, down slightly from Thursday's close of 6.3733. The currency has persistently traded below the PBOC's midpoint recently. China's gross domestic product grew 7.6 percent in the second quarter of 2012 from a year earlier, its slowest pace in three years. But as that was in line with market expectations, traders said it had already been largely factored into the yuan's value. Traders are now focusing on whether China's downturn has bottomed out, and assessing how much more policy easing will be rolled out by Beijing in coming months. MEASURED DEPRECIATION Sentiment on the yuan has soured this year amid the dollar's rally and signs that the world's second largest economy is slowing more rapidly than originally forecast. The yuan has depreciated 1.3 percent versus the dollar so far in 2012. To counter the slowdown, the central bank cut interest rates for the second time in a month last week, among other official stimulus steps. On the exchange rate front, the government aims to prevent the yuan from falling too fast, so the PBOC has recently set a slew of midpoints stronger than the yuan's trading level. The government appears to be afraid that an overly quick depreciation of the yuan may cause big capital outflows, with capital inflows having already eased significantly due to the global slowdown. PBOC data issued on Thursday showed that the central bank and Chinese financial institutions bought a net 49.1 billion yuan ($7.7 billion) worth of foreign exchange in June, up from 23.4 billion yuan in May but down sharply from 277.3 billion in June last year.

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