China's yuan retreated on Tuesday from the previous day's six-month high against the dollar, spooked by weak economic growth data while demand for the greenback has picked up ahead of the long Lunar New Year holiday that begins this weekend.

China's economic growth in 2022 slumped to one of its worst showings in nearly half a century, with the fourth quarter hit hard by stringent COVID 19-related curbs and a property market slump, increasing the pressure on policymakers to unveil more stimulus this year. "Considering the possible long impact of the zero-COVID policy on consumption and the economic downturn for the China economy over the past year, we see the risk of data disappointing after the Chinese New Year break," said Ken Cheung, chief Asian FX strategist at Mizuho Bank. Beijing abruptly dismantled most of its COVID curbs in December and reopened its borders earlier this month, spurring high hopes among economists and analysts that the world's second-largest economy would rebound this year.

That has buoyed Chinese assets and its currency since the start of the year. Some traders said, however, that investors will now be looking for confirmation from indications on the ground. Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.7222 per dollar, 87 pips or 0.13% weaker than the previous fix of 6.7135. In the spot market, the onshore yuan opened at 6.7321 per dollar and eased to a low of 6.7676 at one point, the weakest since Jan. 11.

By midday, it was changing hands at 6.7605, 225 pips softer than the previous late session close. Apart from weak data denting market sentiment, currency traders said households rushed to purchase foreign exchange for overseas trips over the upcoming holiday. "It's definitely pent-up demand," said a trader at a foreign bank, noting that most Chinese people have not been able to travel abroad since the pandemic broke out in early 2020, when Beijing largely closed its borders.

By midday, the global dollar index had risen to 102.39 from the previous close of 102.204, while the offshore yuan was trading at 6.7669 per dollar. The yuan market at 0345 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.7222 6.7135 -0.13% Spot yuan 6.7605 6.738 -0.33% Divergence from 0.57% midpoint* Spot change YTD 2.06% Spot change since 2005 22.42% revaluation Key indexes: Item Current Previous Change Thomson 0.0 Reuters/HKEX CNH index Dollar index 102.39 102.204 0.2

*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 6.7669 -0.09% * Offshore 6.6333 1.34% 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 Winni Zhou and Brenda Goh; Editing by Edmund Klamann)