Yuan breaches key psychological support, hovers at 16-month low

SHANGHAI (Reuters) - China's yuan weakened past the key psychological support level of 6.25 per dollar late on Thursday, on increased corporate dollar demand and persistently bearish views of the Chinese currency, traders said.

Spot yuan fell as low as 6.2509 per dollar in the final few minutes of trade, hitting its lowest level since December 2012 for the second straight day.

It trimmed losses slightly to close at 6.2489, down 0.18 per cent from Wednesday's close and toppling the previous 16-month low of 6.2466 hit in intraday trade on Wednesday.

The People's Bank of China (PBOC) signalled its intention to keep the yuan stable for now by setting its midpoint slightly stronger for the second day. But the incremental strengthening also indicated that the PBOC does not want the Chinese currency firming significantly, traders said.

"Lots of stop-loss orders to buy dollars have emerged recently as companies apparently failed to foresee the possibility for the yuan to remain weak for such a long time,"said a trader at a Chinese commercial bank in Shanghai.

With the currency having now briefly breached 6.25/dollar support, it could move mainly between 6.25-28 per dollar in coming weeks, traders said.

A Reuters poll on Thursday showed that sustained weakness in the yuan had soured sentiment on emerging Asian currencies in the past two weeks.

Short positions in the yuan slightly increased, according to the survey of 13 analysts.

Still, traders widely expect the PBOC will not take further action to guide the yuan lower or higher until mid-May when China publishes foreign trade data for April.

The yuan has depreciated 3.12 per cent versus the dollar so far this year after the PBOC guided the currency weaker in February and March to deter speculators from betting on a one-way appreciation.