China's yuan hits 8-month high as PBOC moves to boost investor confidence

SHANGHAI, July 24 (Reuters) - China's yuan hit an eight-month high against the dollar on Thursday, after the central bank guided the currency significantly higher in what analysts interpreted as an attempt to boost investor confidence.

The currency's strength, which was partly guided by China's central bank, also comes days ahead of a new round of economic and trade talks between Chinese and U.S. officials.

Beijing has been sending conciliatory messages in the lead-up to next week's talks in Stockholm, while U.S. Treasury Secretary Scott Bessent has described trade with China as "in a good place."

Both the onshore CNY=CFXS and offshore CNH=D3 yuan rose to levels last seen in early November, erasing most of the losses incurred since U.S. President Donald Trump's election win.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 7.1385 per dollar, its strongest since November 6 and 118 pips firmer than a Reuters estimate CNY=RTRS of 7.1503. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

The PBOC's firmer-than-expected yuan midpoint guidance was "mainly meant to balance domestic demand and external conditions," said Xing Zhaopeng, senior China strategist at ANZ.

Xing said the broad economy is facing deepening deflationary pressure and lingering tariff uncertainties from the United States.

"Yuan appreciation is conducive to increasing the allocation of yuan-denominated assets and the wealth effect should help expand domestic demand ... And that will boost market confidence and helps pull (China) out of deflation," he said.

The stronger-than-expected PBOC fixing lifted the spot market. The onshore yuan CNY=CFXS rose to a high of 7.1478 per dollar, the strongest since November 8, before fetching 7.1513 as of midday.

Its offshore counterpart CNH=D3 followed the strengthening trend to rise past the 7.15 per dollar level for the first time since November. It last traded at 7.1491 at midday.

China was initially singled out with tariffs exceeding 100% and has until August 12 to reach an agreement with the White House to keep Trump from reinstating additional import curbs imposed during tit-for-tat tariff exchanges in April and May.

"The depreciation pressure on the yuan has significantly eased since the U.S. and China reached a tariff truce," analysts at BofA global research said in a note.

"This sentiment is being reinforced by decent GDP growth data and an upturn in China's equity market as confidence slowly returns," they said, revising their yuan forecasts up to trade at 7.1 per dollar at the end of this year from 7.3 in a previous prediction.

China's benchmark Shanghai Composite index .SSEC closed at the highest level in 3-1/2 years on Wednesday and gains were extended on Thursday. .SS