SHANGHAI: China's yuan strengthened on Wednesday on a weaker dollar as US Treasury Secretary nominee Janet Yellen called for a big stimulus package, while the market looked for clues to the incoming US administration's China policy.

The US dollar nursed losses and the euro hung on to gains as investors' mood brightened in the wake of a better-than-expected sentiment survey in Germany and big spending talk from Janet Yellen.

The People's Bank of China set the midpoint rate at 6.4836 per dollar prior to market open, 47 pips firmer than the previous fix of 6.4883.

The spot market opened at 6.4760 per dollar and was changing hands at 6.4709 at midday, 91 pips firmer than the previous late session close.

Traders said Yellen's spending talk boosted risk appetite, while the focus shifted to the likely economic and China policies of US President-elect Joe Biden.

Yellen urged lawmakers on Tuesday to "act big" on coronavirus relief spending, arguing that the economic benefits far outweigh the risks of a higher debt burden.

She said China was the United States' most important strategic competitor and underscored the determination of the Biden administration to crack down on what she called China's "abusive, unfair and illegal practices."

Biden's nominee for secretary of state, Antony Blinken, said on Tuesday he believed President Donald Trump was right in taking a tougher approach to China.

Biden's choice for the top US intelligence job Avril Haines said the United States should take an "aggressive stance" toward the threat posed by the aggressive and assertive China that it faces today.

"Basically, Sino-US relations will not return to the honeymoon period, and the Biden administration would probably continue restrictions on Chinese companies, in particular in telecommunication industry," said Bruce Yam, forex strategist at brokerage Everbright Sun Hung Kai.

China stood pat on its benchmark lending rate for corporate and household loans for a ninth straight month at its January fixing on Wednesday, matching market expectations.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.88, firmer than the previous day's 95.73.

The global dollar index fell to 90.371 from the previous close of 90.421.

The offshore yuan was trading at 6.4701 per dollar.

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 6.6146, -1.98 percent away from the midpoint.

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