SHANGHAI, April 29 (Reuters) - China's yuan hovered near
a five-month low against the dollar on Monday after the central
bank set the official guidance rate at the weakest level in two
months.
    The yuan was trading at 7.2468 per dollar at 0308
GMT, 3 pips weaker than the previous close and just a fraction
ahead of a 5-month low of 7.2478 hit in early trade.
    The currency is down 2.1% this year, pressured by its
relative low yields versus other currencies and outflows of
foreign investment from an anaemic stock market. 
    Prior to the market's opening, the People's Bank of China
(PBOC) set the midpoint rate, around which the yuan
is allowed to trade in a 2% band, at 7.1066 per dollar, the
weakest level since February 28. 
    Spot yuan opened at 7.2400 per dollar and was
changing hands at 7.2468 at midday, only 19 pips from the daily
downside limit.
    The yuan is facing mounting challenges as sticky inflation
in the U.S. has pushed back the expected timing of the Federal
Reserve's rate-cutting cycle in a boost to the dollar. A
persistently weak Japanese yen also continues to drag
down its Asian peers.
    The Japanese yen hit its weakest levels since April 1990 on
Monday.
    Given that the yuan is an anchor for Asian and other
emerging market (EM) currencies as well as a restraint on
overall FX volatility, its decline would exacerbate EM FX
pressures, Barclays analysts said in a note. 
    The global dollar index rose to 105.966 from the
previous close of 105.938. 
    Market participants are watching closely for China's factory
activity data due on Tuesday and the Federal Reserve's May 1
policy review.
    The offshore yuan was trading 132 pips weaker than
the onshore spot at 7.26 per dollar. 

    The yuan market at 0308 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      7.1066   7.1056    -0.01%
                                       
 Spot yuan          7.2468   7.2465    0.00%
                                       
 Divergence from    1.97%              
 midpoint*                             
 Spot change YTD                       -2.06%
 Spot change since 2005                14.21%
 revaluation                           
    
*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The People's Bank of China (PBOC) allows the exchange rate to
rise or fall 2% from official midpoint rate it sets each
morning.

  OFFSHORE CNH MARKET     
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    7.26      -0.18%
        *                        
 Offshore              7.0528    0.76%
 non-deliverable                 
 forwards                        
               **                
 
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint,
since non-deliverable forwards are settled against the midpoint.
. 
    

    

 (Reporting by Shanghai Newsroom
Editing by Shri Navaratnam)