China's yuan weakened slightly on Monday against a firm dollar as investors weighed when the U.S. Federal Reserve will start cutting rates in the wake of a blowout jobs report, while Beijing's move to defend the yuan is also in focus. The yuan was not far from the 4-1/2-month low of 7.2364 it struck last week, prompting state-owned banks to step in to support the currency. It has fallen roughly 1.8% so far this year. Prior to market opening, the People's Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.0947 per U.S. dollar prior to market open, firmer than the previous fix. Monday's midpoint was 1,283 pips firmer than a Reuters estimate of 7.2230.

The central bank continued its months-long practice of setting the rate at levels firmer than market projections, widely viewed by traders as an attempt to keep the currency stable. In the spot market, the spot yuan opened at 7.2295 per dollar and was changing hands at 7.2336 at midday, 16 pips weaker than the previous late session close. The dollar was firm in Asian trading on Monday as investors looked ahead to U.S. inflation data after the big payrolls number last week, and as Treasury yields reached for December highs. "In the short term, we expect USD/CNY to stay range-bound, but there are more upside than downside risks due to extended USD strength from strong U.S. economic data and talks of tariff hikes on Chinese exports from U.S./EU," said Goldman Sachs in a note. Investor focus this week will be on the U.S. consumer price index (CPI) report.

In China, credit data, inflation readings and trade figures are also due this week. Analysts at broker CICC said in a note China's economic data may dip slightly due to higher comparative year earlier bases, so the focus will be on how the central bank will set the midpoint rate, and they expect more measures to stabilise the yuan will follow. The global dollar index rose to 104.346 from the previous close of 104.298. The offshore yuan was trading at 7.2488 per dollar.

The yuan market at 0401 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 0.00% 7.0947 7.0949 Spot yuan 7.232 -0.02% 7.2336 Divergence from midpoint* 1.96% Spot change YTD -1.88% Spot change since 2005 revaluation 14.42% Key indexes: Item Current Previous Change Thomson Reuters/HKEX 0.0 CNH index Dollar index 104.346 0.1 104.298 *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 * -0.21% 7.2488 Offshore non-deliverable 0.80% forwards 7.0385 ** (Reporting by Shanghai Newsroom; Editing by Lincoln Feast and Jacqueline Wong)