China's yuan slipped against the dollar on Monday as investors returned from the week-long Lunar New Year break and caught up with a strong U.S. currency, but losses were limited by signs of encouraging holiday spending. The latest U.S. data showed inflation remained sticky in the world's largest economy, pushing back market expectations for the start of interest rate cuts by the Federal Reserve to at least the middle of the year from March.

The trajectory of the U.S. monetary policy affects the dollar and other major currencies, including the yuan, traders said. Prior to 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 7.1032 per dollar, 4 pips firmer than the previous fix of 7.1036 on Feb. 9. The central bank continued its months-long practice of setting the official guidance at levels firmer than market projections, widely viewed as an attempt to keep the currency stable.

Analysts at Barclays said in a note that by keeping the official guidance rate around 7.10 per dollar, it can be "interpreted as status quo and the range (for the spot yuan) between 7.10 and 7.25 should continue to hold." Monday's midpoint was 938 pips firmer than a Reuters estimate of 7.1970. In the spot market, the onshore yuan opened at 7.1930 per dollar and was changing hands at 7.1961 at midday, 34 pips weaker than the previous late session close. "USD/CNY spot has been trading slightly below the 7.20 level since the start of the year, anchored by the fixing that has been steadying near 7.10," said Paul Mackel, global head of FX research at HSBC. "However, much hinges on whether there will be an improvement in onshore sentiment after the holiday period has ended. One way to capture this is how the domestic equity market performs in the near term."

Chinese shares inched higher in early trade, underpinned by tourism and film-maker stocks on the back of buoyant holiday spending data. Tourism revenues in China during the Lunar New Year holiday surged 47.3% from a year earlier, official data showed on Sunday. Meanwhile, China's box office revenue exceeded 8 billion yuan ($1.11 billion) during the break, marking a record high.

"Although we do see some strength in the data, we urge market participants to exercise caution," said Ting Lu, chief China economist at Nomura. "We are concerned that markets may risk getting caught up in the euphoria of the moment, under the supposition that China's economy is suddenly bottoming out, driven by the Chinese people's hidden passion for spending." Meanwhile, traders said they will switch their attention to the monthly fixing of the benchmark loan prime rate (LPR) due on Tuesday to gauge the central bank's monetary stance.

China's central bank left a key policy rate unchanged as expected on Sunday when rolling over maturing medium-term loans, with uncertainties around the timing of an easing by the Fed limiting Beijing's room to manoeuvre on monetary policy. By midday, the global dollar index stood at 104.254, while the offshore yuan was trading at 7.2077 per dollar.

The yuan market at 0411 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 7.1032 7.1036 0.01% Spot yuan 7.1961 7.1927 -0.05% Divergence from 1.31% midpoint* Spot change YTD -1.37% Spot change since 2005 15.01% revaluation Key indexes: Item Current Previous Change Thomson 0.0 Reuters/HKEX CNH index Dollar index 104.254 104.296 0.0 *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 7.2077 -0.16% * Offshore 7.01 1.33% 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 Jacqueline Wong)