By Georgina Lee

HONG KONG, Nov 25 (Reuters) - China's yuan weakened on Friday, as a continuous surge in Covid cases has rekindled traders' concern about the slowing economy, and doubts about whether more monetary easing policies could achieve its goal of stimulating growth.

China has reported another record high of new local Covid-19 cases on Thursday, totalling 32,695, as cities across the country enforce measures and curbs to control outbreaks. Thursday's new cases set a daily record for a second consecutive day.

"The risk into the winter months is indeed of greater social restrictions and related economic disruptions. The developments have been holding back the yuan amid the US dollar retreat of recent days," said Alvin Tan, head of Asia currency strategy at RBC Capital Markets. The spot yuan CNY=CFXS opened at 7.1650 per dollar and was changing hands at 7.1585 at midday, 45 pips weaker than the previous late session close and 0.34% away from the midpoint. The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day.

The People's Bank of China set the midpoint rate CNY=PBOC at 7.1339 per U.S. dollar prior to market open, weaker than the previous fix 7.1201.

The global dollar index .DXY fell to 105.812 from the previous close of 106.076, standing close to a three-month low.

Analysts said further weakness of the yuan against the dollar is however capped by the lingering effect of the Federal Reserve meeting minutes on Wednesday, which signalled it was moving towards a lower pace of interest rate hikes.

This has helped send the dollar index to a three-month lowm, and was on track for a weekly loss on Friday.

Still, the yuan gave back some its gain Thursday after the State Council, China's cabinet, issuing a strong easing signal on Wednesday saying that it will use timely cuts in banks' reserve requirement ratio (RRR) to keep liquidity ample.

Further easing policies may have limited impact in boosting credit demand, analysts said. This is because an RRR cut, which injects extra liquidity in the interbank system, may not be effective in boosting credit expansion when credit demand remains subdued during the downturn in property market and the macro economy, said Ken Cheung, chief Asian FX strategist at Mizuho Bank in a research note.

An RRR cut would be "an encouraging signal to show PBoC’s determination to stimulate growth but the actual impact on supporting real economy should prove to be limited," he said.

The offshore yuan CNH=D3 was trading 0.01% weaker than the onshore spot at 7.1595 per dollar.

Offshore one-year non-deliverable forwards contracts (NDFs) CNY1YNDFOR= , considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.965, 2.42% away from the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 4:32AM GMT:

ONSHORE SPOT: Item

Current Previous Change PBOC midpoint

CNY=SAEC

-0.19%

7.1339 7.1201

Spot yuan

CNY=CFXS

7.154 -0.08%

7.1595

Divergence from

midpoint*

0.36%

Spot change YTD

-11.24% Spot change since 2005

revaluation

15.60%

Key indexes: Item

Current

Previous Change

Thomson

Reuters/HKEX

0.0 CNH index

Dollar index

105.711

-0.3

106.076

*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

CNH= *

0.0

7.1595

1%

Offshore

non-deliverable

6.965 2.42% forwards

CNY1YNDFOR= **

*Premium for offshore spot over onshore CNY=CFXS **Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. CNY=SAEC .
Reporting by Georgina Lee; Editing by Stephen Coates