China's yuan slightly firmed on Thursday against a softer U.S. dollar as investors stepped back to assess the interest rate outlook, while the central bank vowed to maintain yuan stability. The yuan was trading at 7.2359 per dollar at 0420 GMT, slightly stronger than the previous close. The central bank's daily benchmark fixings and support from state-owned banks have slowed its decline but it hit a five-month low of 7.2422 on April 16. The currency is down 1.9% this year, pressured by its relative low yield versus other currencies and outflows of foreign investment from an anaemic stock market. Prior to market open, the People's Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.102 per U.S. dollar, firmer than the previous fix 7.1025. The fixing is 1,261 pips firmer than a Reuters estimate but the deviation has shrunk from the strong guidance in the past weeks. "Raising the (dollar-onshore yuan) fix could have the propensity to drive the (dollar-offshore yuan) higher and what PBoC likely desires is a controlled pace of yuan depreciation in the face of a strong (U.S. dollar) environment," Maybank analysts said in a note. In the spot market, the yuan opened at 7.2347 per dollar and was changing hands at 7.2359 at midday, 24 pips firmer from the previous late session close.

The PBOC said it will maintain the yuan stability, it wrote in state newspaper People's Daily on Thursday. "We must insist that the yuan exchange rate is mainly determined by the market, and at the same time resolutely correct pro-cyclical behaviour and prevent the risk of exchange rate overshooting." The dollar was soft on Thursday as traders assessed the U.S. interest rates outlook following comments from Federal Reserve officials that cemented expectations of monetary settings remaining restrictive for a while longer.

The greenback has been rising in recent weeks amid strong U.S. economic data, persistent inflation and conflict between Israel and Iran in the Middle East, casting a shadow across currency markets including the yuan. "We are of the view that (dollar-onshore yuan) central parity is likely to remain stable as PBoC continues to keep a grip on the RMB," Maybank said. The global dollar index fell to 105.866 from the previous close of 105.951. The offshore yuan was trading at 7.2455 per dollar. The yuan market at 4:26 a.m. GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 0.01% 7.102 7.1025 Spot yuan 0.03% 7.2359 7.2383 Divergence from midpoint* 1.89% Spot change YTD -1.91% Spot change since 2005 revaluation 14.38% *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 * -0.13% 7.2455 Offshore non-deliverable 7.049 0.75% forwards ** (Reporting by Shanghai Newsroom)