SHANGHAI: The yuan weakened early on Monday, trading more than 0.3 percent weaker than the central bank's mid-point after authorities doubled the size of the currency's trading band, a move seen crucial in liberalising the market and encouraging more two-way trade in the currency.

Spot yuan traded at 6.3176 early in the morning session, compared with Friday's close of 6.3030. Before trading began, the central bank set the mid-point at 6.2960, weaker than the previous fixing of 6.2879.

The People's Bank of China said on Saturday it would allow the yuan to rise or fall 1 percent from its mid-point every day, effective Monday, compared with its previous 0.5 percent limit.

In the near term, the widening of the band to 1 percent from 0.5 percent from the central bank's mid-point is unlikely to alter market views for a gradual yuan appreciation of around 2 to 3 percent this year, traders said.

But the move sends a strong signal that the days of non-stop, one-way appreciation in the yuan against the dollar are gone forever, they said.

"Market movements will become sharper. It also shows the central bank's attitude - they will not try to control market volatility. We will live or die by our own skill," said a trader at a European bank in Shanghai.

He added that expectations about the currency's movement would now be based more on signals from the market rather than expectations about central bank policy.

China has long stated its intention to promote greater two-way flexibility in the tightly-controlled yuan.

In a move seen aimed at testing waters for the yuan to trade in a wider range, the PBOC has been allowing the mid-point to move by a few hundred pips in selected days since the start of March.

In the first half of March, the PBOC weakened the yuan's mid-point fixing by 0.70 percent against the dollar, its biggest 11-session loss since the China Foreign Exchange Trade System (CFETS), the domestic market, was set up in 1994.

Then, over the following eight sessions, the yuan's mid-point value rose 0.82 percent, the biggest eight-session gain since October 2010. The PBOC set the mid-point at a record high for three sessions ending March 27.

Such see-saw fixings did not, however, produce significant movement in the yuan's real-time trading range.

The yuan's move has so far been mostly confined to a daily range of 100 to 200 pips in the Shanghai-based CFETS, with movements sometimes even being limited to less than 100 pips.

Traders expect that the PBOC's widening of the band will mean the currency eventually moves more than 200 pips a day, possibly even 400 pips on occasions, over the next 12 months.