If the yuan finishes the late night session at the midday level, it will have lost 0.76 percent against the dollar for the month, the sixth straight monthly loss -- the longest such streak since the exchange rate was unified in 1994.
Prior to the market opening on Friday, the People's Bank of China (PBOC) set the midpoint rate at 6.8792 per dollar, the weakest level since Aug.17, 150 pips or 0.2 weaker than the previous fix of 6.8642.
In the spot market, the yuan opened at 6.8874 per dollar and fell to a low of 6.8910 at one point, the weakest level since Aug.24, before paring losses.
By midday, it was changing hands at 6.8830, 60 pips firmer than the previous late session close.
But volumes were thin with few participants willing to stake out fresh positions. Friday is the last trading day before the week-long National Day holiday that begins on Oct. 1.
Many traders expect the yuan to swing in a wide range of 6.8 to 6.9 per dollar in the near term but with a downward bias as neither Washington nor Beijing appears willing to compromise on trade any time soon.
Economists also expect further policy easing measures in coming months in China if domestic and external demand continues to cool, adding pressure on the currency.
However, a trader at a Chinese bank said the market was growing wary of intervention as spot yuan again nears 6.9, a level at which the central bank rolled out a slew of stabilising measures in August.
Sheng Songcheng, a policy adviser to the central bank, told state-run Beijing News that China still needs "appropriate guidance, management or even intervention" in the exchange rate.
"China's interest rate is in fact not fully market driven; some asset prices, such as housing prices, also need regulations," Sheng was quoted as saying.
"And it is obviously unrealistic to require the more sensitive exchange rate to realize a fully free float now. It should be a long-term target."
Gao Qi, FX strategist at Scotiabank in Singapore, said in a client note on Friday: "The PBOC is expected to step in to curb one-way speculation if needed."
But he added that foreign portfolio inflows into Chinese stocks and bonds should boost the yuan over the medium to long term.
Global index provider FTSE Russell said on Thursday it will start including mainland Chinese shares in its major benchmarks from June next year, in a move that it expects will draw initial net inflows of $10 billion from passive investors.
In global markets, the dollar stood tall against its major trading partners on Friday, after data reinforced upbeat views about the U.S. economy and backed the Federal Reserve's signal for a steady course of rate increases over the next year. [FRX/]
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 92.86, firmer than the previous day's 92.75.
The global dollar index rose to 94.945 from the previous close of 94.894.
The offshore yuan was trading 0.04 percent firmer than the onshore spot at 6.8803 per dollar.
Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.9615, 1.18 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.
(Reporting by Winni Zhou and John Ruwitch; Editing by Kim Coghill)
