Month-end corporate demand for the dollar explained the yuan's marginal weakening, traders said.

Prior to market opening on Monday, the People's Bank of China (PBOC) set the midpoint rate at 6.7310 per dollar, 3 pips weaker than the previous fix of 6.7307.

The official midpoint was firmer than expectations for a second straight session, according to several traders. The midpoint was 28 pips firmer than Reuters' estimate of 6.7338.

In the spot market, the onshore yuan opened at 6.7345 per dollar and was changing hands at 6.7322 at midday, 22 pips weaker than the previous late session close and 0.02

percent softer than the midpoint.

Traders said the stronger official midpoint could represent authorities' intention to stabilise the market and discourage investors from testing lows in the yuan against the backdrop of recent dollar rallies.

The dollar index against a basket of six other major currencies, traded at 97.969 at midday, down slightly from Friday's near two-year peak of 98.330.

Face-to-face talks between the United States and China are set to resume this week with Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer traveling to Beijing.

U.S. Treasury Secretary Mnuchin told the New York Times that negotiations are in "the final laps", and market participants believe a meeting between U.S. President Donald Trump and

Chinese President Xi Jinping could take place either in late May or late June.

Sino-U.S. trade tensions weighed heavily on the yuan for most of last year, but it has clawed back some ground in recent months as tensions eased.

Late last week, the yuan trading was more volatile than seen in recent months. But Li Liuyang, senior foreign exchange analyst at China Merchants Bank in Shanghai, said the exchange rate is "likely to stabilize" this week because of the trade negotiations.

Apart from the trade talks, investors also await April manufacturing data release on Tuesday, which is expected to offer a clearer picture whether the world's second largest economy has started to bottom out.

A Reuters poll showed that China's factory activity likely expanded at a steady clip in April, marking a second straight month of expansion.

While markets debated recently if further monetary policy easing measures are needed following unexpectedly strong first quarter economic data, a PBOC vice governor said China's central bank has no intent to tighten or relax monetary policy.

Chinese financial markets will be closed from Wednesday for Labor Day holiday, and trading will resume on Monday, May 6.

Stephen Chiu, FX and rates strategist at China Construction Bank (Asia) in Hong Kong expects the yuan to track the dollar's movements in the holiday-shortened week, with both onshore and offshore yuan swinging in a range of 6.71 to 6.77 per dollar this week.

The offshore yuan was trading at 6.7354 per dollar as of midday.