SHANGHAI: China's yuan got February off to a weak start after eight straight months of gains, as Monday's trading was dominated by renewed fears that a recent surge in mainland COVID-19 cases and fresh lockdowns in some cities could stunt the economic recovery.

Those worries were borne out in a survey of factory activity, which grew at the slowest pace in five months in January, hit by a wave of domestic coronavirus infections.

"Chinese manufacturers remain worried about this second virus wave. And if China is worried, the world should also be worried," Stephen Innes, chief global markets strategist at Axi, said in a note.

Prior to market opening, the People's Bank of China set the midpoint rate at 6.4623 per dollar, 86 pips or 0.13% firmer than the previous fix of 6.4709.

In the spot market, the onshore spot yuan opened at 6.4300 per dollar and was changing hands at 6.4605 at midday, 305 pips weaker than the previous late session close.

The dollar was also in heavy demand, traders said, as investors sought safety in the US currency amid nervous markets in the wake of the battle on Wall Street between hedge funds and retail investors.

Some currency traders also said that momentum for further gains in the Chinese currency started to fade after the yuan basket index rose to its highest level in 2-1/2 years, mainly as the authorities were widely believed to be keen on maintaining the nation's export competitiveness.

Official data showed that CFETS RMB index, a gauge that measures the yuan's value against its major trading partners, rose to 96.50 as of Friday, the highest level since June 2018.

Interbank money conditions were also on the radar of investors.

China's short-term money rates remained elevated on Monday, as the central bank refrained from making a heavier liquidity injection with cash conditions still tight ahead of the week-long Lunar New Year holidays, which start on Feb. 11.