China raises yuan fixing by most since 2005 to battle yuan bears

SHANGHAI (Reuters) - China's central bank on Friday raised the value of it official guidance rate by the most since the yuan was revalued in 2005, as the authorities ramped up their defense of the currency.

The official yuan midpoint was set at 6.8668 per dollar prior to the market opening, 639 pips or 0.9 percent firmer than the previous fix, according to Thomson Reuters data. The fix was 6.9307 per dollar on Thursday.

China is believed to have intervened in foreign exchange markets this week to shore up the sliding yuan, sparking speculation it wants a firm grip on the currency ahead of U.S. President-elect Donald Trump's inauguration on Jan. 20.

Some traders said Friday's strong fixing was also a reflection of the midpoint fixing mechanism reacting to a slide in the dollar.

The strength in the midpoint comes after a sharp rise in the offshore yuan spot rate over the past two trading days in response to a spike in yuan borrowing rates. The offshore yuan traded at 6.8265 per dollar as of 0203 GMT.

It is not clear if Chinese authorities have engineered the spike in yuan borrowing rates in Hong Kong this week. But they had used such a tactic before to support offshore yuan exchange levels and by extension relieve some of the pressure on the yuan onshore, which is trading at more than eight-year lows.

China's central bank will not tolerate sustained depreciation of the yuan, the China Securities Journal said on Friday.

The Chinese currency was not obviously over-valued, and the appreciation of the U.S. dollar has its upper limit, it said in a commentary.

(Reporting by Winni Zhou and John Ruwitch; Editing by Jacqueline Wong)