China's yuan rises to 2-week high on hopes of de-escalation in US-China tensions

SHANGHAI, April 18 (Reuters) - China's yuan strengthened to a more than two-week high against the dollar on Friday, underpinned by broad weakness in the greenback and some early signs of de-escalation in the U.S.-China trade war.

U.S. President Donald Trump on Thursday signalled a potential end to the tit-for-tat tariff hikes between the U.S. and China that have rocked global financial markets.

"I don't want them to go higher because at a certain point you make it where people don't buy," Trump told reporters about tariffs at the White House.

Trump also said on Thursday that China had reached out to talk since the U.S. imposed huge tariffs on imports from the country.

Developments in the trade relations between the world's two largest economies have been the main driver of the yuan since Trump announced the "reciprocal" tariffs on April 2 and then raised duties on Chinese goods to 145%, prompting Beijing to retaliate with its own counter-measures.

It pressured the yuan to a trough of 7.3518 per dollar last Thursday, a level that was last seen during the global financial crisis.

Market sentiment improved following Trump's comments. The onshore yuan CNY=CFXS rose to a high of 7.2855 per dollar in morning deals, the strongest level since April 3, before changing hands at 7.2941 as of 0304 GMT.

Its offshore counterpart CNH=D3 traded at 7.2978 per dollar at 0304 GMT, up about 0.07% in Asian trade.

The optimism also allowed the central bank to pare some support through its official yuan guidance by setting the fixing at a more than one-week high, currency traders said.

Prior to market opening, the People's Bank of China (PBOC) set the rate CNY=PBOC around which the yuan is allowed to trade in a 2% band, at 7.2069 per dollar, the strongest level since April 9.

That was 16 pips firmer than the previous fix and 829 pips firmer than a Reuters' estimate CNY=RTRS of 7.2898, the narrowest gap between official guidance and Reuters' projection this month.

The PBOC has slightly loosened its grip on the currency since last week by allowing official guidance to weaken past the key threshold of 7.2. However, it came in stronger than market projections, which traders interpreted as an official attempt to keep the yuan steady while allowing some flexibility to counteract tariff shocks.

However, the yuan's value against the its major trading partners, as measured by the CFETS yuan basket index .CFSCNYI, fell to a 21-month low of 96.14, according to Reuters calculations based on official data.

The CFETS index has lost about 5.3% year-to-date, while the yuan was largely flat against the dollar during the same period.

Analysts at Capital Economics said the yuan's bigger loss on a trade-weighted basis reflected the dollar's fall against most other currencies.

"Our sense is that the authorities' main aim is to limit volatility and avoid the impression that they've lost control of the currency, rather than to stop it depreciating entirely," they said in a note this week.

"They have, after all, nonetheless been allowing the fixing rate to weaken slowly. And the trade-weighted depreciation is still nowhere near enough to offset even the ~60% tariff rate we assume will remain in place."

LEVELS AT 0304 GMT: