Yuan set for 7th straight quarterly gain as exporters sell dollars before holiday

SHANGHAI, Sept 30 (Reuters) - China's yuan firmed against the dollar on Wednesday and headed for its seventh straight quarterly gain, as exporters stepped up dollar sales and upbeat factory data lifted sentiment ahead of the National Day holiday.

The Chinese currency has been on an upward trend since late 2023, underpinned by strong exports, foreign exchange settlement flows and broad dollar weakness.

The spot yuan opened at 6.7050 per dollar and was last trading at 6.7047 as of 0221 GMT, 18 pips firmer than the previous late session close.

"FX settlement has been the direct driver of the yuan's appreciation this year," analysts at ICBC International said in a note.

"Whether hedged or not, holding dollars has offered no relative advantage this year, so retained foreign exchange has increasingly been converted into yuan."

The yuan is up 0.2% against the dollar this month, and 4.3% firmer this year.

Market participants said exporters ramped up conversion of their dollar holdings into the local currency ahead of the week-long National Day holiday which begins on Thursday. Trading of onshore yuan will resume on October 8.

Prior to the market opening, the People's Bank of China set the midpoint rate at 6.7351 per dollar, its strongest since February 2, 2023, and 326 pips weaker than a Reuters' estimate. The spot yuan is allowed to trade in a 2% band either side of the fixed midpoint each day.

Sentiment was also buoyed by data showing China's factory activity returned to growth in September, as easing weather disruptions allowed factories to resume operations and a global artificial intelligence boom supported the industrial sector.

Investors were also weighing measures China unveiled on Tuesday designed to steer cheaper credit into a range of sectors including infrastructure and technology, as well as expanding support for home buyers.

"The key question that remains unanswered is whether today's measures are merely the starters, with more meaningful main dishes still on the way," UBS economists said in a note.

The offshore yuan traded at 6.7055 yuan per dollar , up about 0.03% in Asian trade.

LEVELS AT 0221 GMT