HONG KONG (REUTERS) - China's central bank set a slightly stronger than expected daily fixing for the yuan on Tuesday (Jan 3) after changes to its currency basket that are expected to make the yuan index less influenced by moves in the US dollar.

China has been promoting use of the index, which references a basket of currencies of its trading partners, partly to divert attention from the yuan's slide against the dollar, which comes as US President-elect Donald Trump has threatened to label Beijing a currency manipulator.

The yuan fell almost 7 per cent against the surging dollar in 2016 to near 8-1/2 year lows, and roughly 5 per cent against the basket.

On the first trading day of 2017, the People's bank of China (PBOC) fixed the yuan midpoint at 6.9498 per dollar, the first fixing after China changed the composition of the currency basket used to determine the yuan's value.

In spot market trading, the yuan slipped 0.1 per cent to 6.9549.

China's foreign exchange market operator said last week it was changing the composition of the CFETS basket that is used to set the yuan's daily value. Starting on Jan 1, the number of currencies in the basket was increased to 24 from 13.

While the new weightings will help reduce the US dollar's impact on the yuan index, they may also suggest a more volatile dollar-yuan exchange rate, analysts say.

"The direct impact of the new basket after including more volatile emerging market currencies is that the yuan index may hold up amid broad dollar strength, as the impact of yuan depreciation on yuan index will be offset by the impact of EM currency's weakness on yuan index," said OCBC analysts in a note.

The nominal dollar weighting in the new basket has been reduced by 4 per cent, they said.

If taking the newly included Saudi riyal and Emirate dirham as well as the existing Hong Kong dollar, which are all pegged to the US dollar, into account, the effective dollar weighting has been cut to 30.54 per cent from 32.95 per cent, they said.

Analysts at Minsheng Securities believed that the impact of dollar index move on the yuan's midpoint fixing will be reduced under the new mechanism, from 0.44 per cent to 0.35 per cent.

The change is aimed at improving the mechanism generating the CFETS RMB Index and making the CFETS basket more representative, the China Foreign Exchange Trade System (CFETS) said on Thursday.

The US dollar held firm on Tuesday as the prospect of rising US interest rates this year kept sentiment bullish.

The yuan is expected to plumb its lowest level against the dollar in nearly a decade this year on sustained capital outflows and dollar strength, according to a Reuters poll in December.