SHANGHAI: China's yuan extended its gains against the US dollar on Thursday and surged to its strongest level in more than three months, thanks to dollar selling and a much-strengthened official midpoint.

Prior to market opening on Thursday, the People's Bank of China set its official yuan midpoint at at 6.5795 per dollar, the highest level in three months and reflecting steady demand for spot yuan the previous day.

Thursday's official midpoint, 271 pips or 0.41 percent firmer than the previous fix of 6.6066 per dollar, was the strongest since Sept. 20.

The move in the official midpoint was also the biggest one-day strengthening in percentage terms since Oct. 11.

The onshore yuan opened at 6.5586 per dollar and jumped to a high of 6.5538 per dollar at one point in morning trade, the strongest level since Sept.18.

At midday, onshore spot yuan was changing hands at 6.5710 at midday, 65 pips firmer than the previous late session close and 0.13 percent stronger than the midpoint.

The yuan has booked a year-to-date gain of around 5.7 percent against the dollar, compared with a roughly 6.5 percent decline last year, which was its worst annual performance since 1994.

Its offshore counterpart also followed the trend on Thursday morning, rising to breach 6.55 per dollar. It traded 0.11 percent firmer than the onshore spot at 6.5635 per dollar.

Traders said the gains in the Chinese currency was supported by dollar sales by both corporate clients and market participants driven by year-end seasonal flows.

A Shanghai-based trader at a foreign bank said it remained too early to decide whether the yuan has figured out a clear direction with a strengthening bias.

Some market participants said the gains in the yuan were capped after a rise in the greenback and some rising corporate demand for dollars on Thursday morning.

The global dollar index, a gauge that measures its strength against six other major currencies, rose to 93.38 from the previous close of 93.313.

Separately, the government said in a statement following the annual Central Economic Work Conference that it would maintain prudent, neutral monetary policy next year as it looks to improve the quality of growth.

The annual closed-door economic conference is attended by China's top leaders and is keenly watched by investors for clues to policy priorities and economic targets in the year ahead.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.87, firmer than the previous day's 95.63.

Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.7155, 2.03 percent weaker than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.