Yuan firms as exporters convert dollars before week-long holiday

SHANGHAI, Sept 29 (Reuters) - The Chinese yuan strengthened against the US dollar on Tuesday, as exporters ramped up conversion of their dollar holdings into the local currency ahead of the National Day holiday, offsetting pressure from a firm greenback that hovered near a two-month high.

The spot yuan opened at 6.7094 per dollar and was last trading at 6.7057 as of 0245 GMT, 61 pips firmer than the previous late session close.

The week-long National Day holiday will start on Thursday, with onshore trading resuming on October 8.

The yuan is expected to trade between 6.5 and 6.9 per dollar for the remainder of the year, supported mainly by continued weakness in the dollar index, Zhang Ming, deputy director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, said in an interview with state media Securities Times.

"If history repeats itself, the current downcycle in the dollar index, which began in 2023, could last until around 2033," Zhang said.

However, room for further yuan appreciation is limited, Zhang said, citing the prospect of U.S. Federal Reserve interest rate hikes and a potential further rise in U.S. long-term bond yields.

The dollar hovered near a two-month high on Tuesday as volatile oil prices and a rapid climb in Treasury yields lent support, although gains were limited as traders awaited US data this week for clues on the Federal Reserve's rate path.

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

Prior to the market opening, the People's Bank of China set the midpoint rate at 6.7411 per dollar, 234 pips weaker than a Reuters' estimate. The deviation is the tightest in two months. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

Should the yuan appreciate too rapidly, potentially harming China's foreign trade, capital flows and asset prices, the central bank still has an ample toolkit and extensive experience to respond, Zhang said. Common measures include stepping up macro-prudential management of capital flows and activating the counter-cyclical adjustment factor.

The offshore yuan traded at 6.7067 yuan per dollar , up about 0.09% in Asian trade.

The dollar index , which measures the greenback against a basket of six currencies, stood flat at 101.19.

LEVELS AT 0245 GMT