China's yuan eased against the dollar on Friday following weaker guidance from the central bank, which market participants read as indication authorities may be willing to tolerate falls in the currency. Investors did not take much cheer from a survey that showed an unexpected pickup in Chinese factory activity in November, with the offshore yuan making brief gains after the report before shedding them.

"Any reaction in the USD/CNH was short-lived as markets may still be uncertain about a bottoming out or stabilization in China's economy," Maybank analysts said in a note. Prior to the market's opening, the People's Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1104 per U.S. dollar, 86 pips weaker than the previous fix 7.1018. That was the largest daily weakening by percentage terms in more than two months. With a weaker dollar and less pressure on the yuan, authorities may be more open to allowing the Chinese currency to move less rigidly and be guided more by market forces, analysts at Citi said in a note. "There has been a lot of client interest as to why now, but there are no obvious catalysts. In the past, changes in fixing patterns have often been abrupt," the analysts said.

The spot yuan opened at 7.1340 per dollar and was changing hands at 7.1388 at midday, 38 pips weaker than the previous late session close. The global dollar index fell to 103.359 from the previous close of 103.497. The offshore yuan was trading 67 pips weaker than the onshore spot at 7.1455 per dollar. The yuan market at 0355 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 7.1104 7.1018 -0.12% Spot yuan 7.1388 7.135 -0.05% Divergence from 0.40% midpoint* Spot change YTD -3.35% Spot change since 2005 15.94% revaluation Key indexes: Item Current Previous Change Thomson 0.0 Reuters/HKEX CNH index Dollar index 103.359 103.497 -0.1 *Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint.

The People's Bank of China (PBOC) allows the exchange rate to rise or fall 2% from official midpoint rate it sets each morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 7.1455 -0.09% * Offshore 6.9575 2.20% non-deliverable forwards ** *Premium for offshore spot over onshore **Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. . (Reporting by Shanghai Newsroom. Editing by Sam Holmes)