SHANGHAI: China's closed slightly stronger on Tuesday, approaching the record high touched last week, after the central bank set a stronger midpoint in response to a fall in the dollar overnight. The People's Bank of China (PBOC) has set a series of strong midpoints in recent weeks, which pushed the spot rate to a record high of 6.1723 per dollar last Wednesday. The yuan closed at 6.1791 on Tuesday, 0.11 percent shy of that record, after strengthening to 6.1756 earlier in the day. In setting a strong midpoint on Tuesday, the PBOC's followed its traditional pattern of fixing the yuan stronger when the dollar index falls overnight. Tuesday represented a return to this pattern, however, following a period in which the link between the dollar index and the midpoint appeared to weaken. The strong midpoints earlier this month occurred even as the dollar index also gained. Traders and analysts say that in setting its daily midpoint, the PBOC is now increasing the correlation to Asian currencies such as the Japanese yen, Korean won, Malaysian ringgit, and the Australian dollar, rather than focusing on the euro, which is the largest component of the dollar index. Traders say client demand for the Chinese currency has remained strong over the last two weeks, even as the exchange rate has appreciated. Data released yesterday showed that net FX purchases by Chinese banks, including the central bank, totaled 236 billion yuan worth of foreign exchange in March. That was down from 295 billion in February but still far higher than any month in 2012. Traders expect the April FX purchase figure to remain at around the same level, suggesting that investors and corporates remain eager to trade foreign currency for yuan.

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