The US Dollar Index appears to have lost its momentum since it hit its recent peak of 81.784 in mid-January, falling 0.5 percent on Thursday.

The People's Bank of China guided the yuan up by fixing a stronger mid-point against the dollar on Friday, letting the reference rate move in the opposite direction against the dollar index but lagging the US currency's movements.

Traders said the yuan may move narrowly around 6.30 per dollar in coming weeks but could stage a mild gain of about 0.7 percent to 6.25 by the end of the first half year.

"The PBOC typically keeps the yuan stable ahead of major Chinese political meetings, so we expect the currency to remain largely unchanged until mid-March when the National People's Congress concludes its annual session," said a trader at a major European bank in Shanghai, referring to China's parliament.

"But the market still expects the PBOC to permit a moderate yuan gain for the first half this year, in particular if the dollar weakens in global markets, partly because China is still under pressure from the United States to let the yuan rise."

Spot yuan was trading at 6.2985 against the dollar, unchanged from Thursday's close as expectations of short-term stability offset a slightly higher mid-point.

The central bank fixed its mid-point at 6.2965 on Friday compared with 6.3031 on Thursday. It has set the fixing in a narrow range after letting it hit an all-time high of 6.2937 per dollar on Feb. 10, which markets construed as a goodwill gesture to the United States ahead of Chinese leader-in-waiting Xi Jinping's visit to that country earlier this month.

A 0.7 percent rise in the yuan in the first half would lag the currency's 1.9 percent appreciation a year earlier.

Traders said compared with 2011, China is faced with an uncertain global market environment this year, mainly caused by the euro zone debt crisis. The government will thus take a more defensive strategy in its exchange rate policy, they said.

In the offshore non-deliverable forwards (NDF) market, the benchmark one-year NDFs implied yuan appreciation of 0.29 percent around midday, almost unchanged from 0.28 percent they implied at Thursday's close.