The central bank has set a slew of weaker fixings recently as a slowing Chinese economy becomes an easy excuse for a pause in yuan appreciation, but traders widely believe a steep yuan depreciation is not on the cards.

In the latest sign of such a slowdown, China's factory sector shrank in November as new orders slumped, according to the HSBC flash manufacturing purchasing managers' index (PMI).

China is also unhappy with the United States, where politicians have once again made the yuan an easy scapegoat in their political moves during the 2012 presidential elections. A pause in yuan appreciation thus appears to be a gesture of displeasure, traders said.

"The PBOC's focus appears to have partly shifted to boost growth, and a pause in yuan appreciation sounds a logical choice if the government wants to boost exports," said a senior dealer at a Chinese commercial bank in Shenzhen.

"But amid signs that some overseas investors are shorting the yuan and foreign capital may start to flow out of China, the PBOC is also unlikely to generate a sharp fall in the yuan."

Spot yuan was trading at 6.3556 per dollar at midday, stronger than Tuesday's close of 6.3608. It has risen 3.68 percent so far this year and 7.40 percent since it was depegged from the dollar in June 2010.

Before trading began, the central bank set the mid-point at 6.3498, up from Tuesday's 6.3555. The central bank appears to have halted the yuan's appreciation since early November, when the mid-point hit a record high of 6.3165.

SHORT YUAN

Some offshore investors have been shorting the yuan since September as signs that the world's second-largest economy is slowing have raised the possibility of a hard landing, albeit the chance is slim, traders said.

Benchmark offshore one-year dollar/yuan non-deliverable forwards (NDFs) have largely been forecasting yuan depreciation in a year's time since late September, reversing a trend of appreciation since the yuan's landmark revaluation in July 2005.

One-year NDFs were bid at 6.3660 on Wednesday, up slightly from 6.3650 at the close on Tuesday, implying that the yuan would fall 0.25 percent in 12 months from Wednesday's PBOC mid-point, compared with a 0.24 percent depreciation implied on Tuesday.

The PBOC data published this week showed China may have sold foreign currency to prop up the yuan for the first time in four years in October, signalling a rare capital outflow when jitters over the global economy prompted some investors to withdraw speculative funds.