SHANGHAI, July 26 (Reuters) - The yuan eased slightly
against the U.S. dollar on Friday, after having notched up its
strongest close in two months a day earlier.
    That was largely due to a firmer footing for the dollar
which lost much ground against the yen on Thursday as carry
trades were unwound. 
    The yuan was 0.04% lower against the dollar at
7.2481 as of 0348 GMT. It traded in a range of 7.2275 to 7.2512
during the morning.
    The dollar was bolstered after data on Thursday showed the
world's largest economy expanded faster than expected and
inflation slowed in the second quarter. That reduced
expectations of a large rate cut in September or a sudden easing
by the Federal Reserve at next week's meeting.
    Market participants said the yuan was unlikely to bounce
much higher in the short-term given that the rebound in the yen
appears to have temporarily encountered obstacles.
    "USDCNH (the dollar-offshore yuan pair) and USDCNY (the
dollar-onshore yuan pair) may continue to trade sideways with an
upside skew within the 7.20-7.30 range," Maybank analysts said
in a note.
    The yuan is up 0.3% against the dollar this month but 2%
weaker for the year to date, held back by worries about the
state of the Chinese economy.
    Spot yuan opened at 7.2399 per dollar and was
last trading 31 pips lower than the previous late session close
and 1.7% weaker than the midpoint.
    Prior to the market opening, the People's Bank of China set
the midpoint rate, around which the yuan is allowed
to trade in a 2% band, at 7.1270 per dollar, its strongest since
July 1 and 959 pips firmer than a Reuters' estimate.
    The central bank has been gradually lowering its daily yuan
official guidance, suggesting it is allowing some depreciation.
    Based on Friday's official guidance, the yuan is allowed to
drop as far as 7.2695.
    Offshore yuan traded at 7.2542 yuan per dollar, down 
0.19% in Asian trade.
    Investor attention on Friday will be on the U.S. personal
consumption expenditure data - the Fed's favoured measure of
inflation, which is expected to come in at 0.1% on a monthly
basis.
    The Fed is expected to stand pat on rates next week but
markets are fully pricing in a rate cut in September. Traders
anticipate 66 basis points of easing this year.
    The dollar index was 0.010% lower at 104.32. 
 
Key onshore vs offshore levels:
    * Overnight dollar/yuan swap onshore -37.83 pips vs.
offshore
-37.83
    * Three-month SHIBOR 1.9 % vs. 3-month CNH HIBOR
3.2 %

LEVELS AT 03:47 GMT GMT
 INSTRUMENT   CURRENT    UP/DOWN(-)    % CHANGE    DAY'S HIGH  DAY'S 
              vs USD     VS. PREVIOUS  YR-TO-DATE              LOW
                         CLOSE %                               
 Spot yuan    7.2481     -0.22         -2.02       7.2275      7.2512