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SHANGHAI - China's yuan inched higher against a weakening U.S. dollar on Friday as President Xi Jinping's call to step up efforts to hit Beijing's annual economic growth target heightened expectations for more stimulus.
Recent economic data shows the world's second-largest economy struggling, prompting analysts to expect more policy support to achieve Beijing's growth target of "around 5%" for this year.
"China's growth momentum has slowed rapidly in recent months," analysts at ANZ said in a note.
"The growth gap from the official target could widen to 0.4 to 0.5%. This will likely prompt the authorities to release a stimulus package."
As of 0254 GMT, the onshore yuan was 0.13% higher at 7.1081 to the dollar.
Even if the yuan retains all its gains on Friday, it would still have lost 0.11% against the dollar for the week, booking the second straight weekly drop.
Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1030 per dollar and 18 pips firmer than a Reuters' estimate.
Currency traders said markets were anxiously awaiting more August data due later this week, including credit lending and activity indicators, to better gauge the health of the economy.
"China's activity data for August will likely show that growth has remained slow, as suggested by the soft August official and Caixin PMI readings," Commerzbank economists said in a note.
"It will be important to watch whether infrastructure investment will pick up – a sign indicating that the government has indeed pushed ahead for more stimulus as growth momentum seems to be stalling."
Meanwhile, a Reuters poll showed that new yuan loans in China likely rebounded sharply in August from a 15-year low in July, as the central bank seeks to shore up a flagging economic recovery.
Separately, in global markets, the U.S. Federal Reserve is all but certain to cut rates next week, although uncertainty around whether it will cut rates by 25 or 50 basis points has kept investors on the edge.
By 0254 GMT, the offshore yuan traded at 7.1099 yuan per dollar, while the dollar's six-currency index was 0.119% lower at 101.04. China's financial markets will be closed on Sept. 15 to Sept. 17 for the Mid-Autumn Festival and reopen on Wednesday, Sept. 18.
(Reporting by Shanghai Newsroom; Editing by Sam Holmes)