SHANGHAI, July 16 (Reuters) - The yuan eased against the
U.S. dollar on Tuesday as a slew of weak Chinese economic data
dampened sentiment, but offshore funding conditions remained
tight, preventing the currency from sliding further.
    The world's second-largest economy grew much slower than
expected in the second quarter as a protracted property downturn
and worries over jobs knocked the wind out of a fragile
recovery, keeping alive expectations Beijing will need to
unleash even more stimulus.
    "The currency will remain the primary release valve to help
ease domestic conditions, with the authorities unwilling to use
the interest rate lever," said analysts at Citi.
    "Having been tactically short the dollar against the
offshore yuan over the past 2 weeks, we have now flipped long,
targeting a slow burn move to 7.35 per dollar over the coming
two months," said Citi analysts in a note to investors.
    Meanwhile, funding conditions remained tight offshore,
making it hard for investors to short the yuan. The offshore
yuan overnight HIBOR rose to 5.23242% on Tuesday,
highest since April 19, 2024.
    Spot yuan opened at 7.2619 per dollar. As of 0301
GMT it was trading 25 pips lower than the previous late session
close at 7.2652 and 1.86% weaker than the central bank's daily
midpoint.
    The yuan has lost 2.2% against the dollar this year. It has
been under pressure since early 2023 as the property crisis,
anaemic consumption and falling yields drive capital flows out
of China, and foreign investors stay away from its struggling
stock market.
    China's faltering growth momentum evident in Monday's second
quarter and June data argue for additional support measures and
further depreciation of the renminbi, said Alvin Tan, head of
Asia FX strategy at RBC Capital Markets. 
    Investors are watching closely for any policy announcements
during the Third Plenum, a top leadership gathering during July
15-18, though it is expected to focus more on longer-term
economic and social issues.  
    Prior to the market opening, the People's Bank of China
(PBOC) set the midpoint rate, around which the yuan
is allowed to trade in a 2% band, at 7.1328 per dollar, 1,343
pips firmer than a Reuters' estimate.
    The gradual but steady weakening trend in the yuan midpoint
guidance rate in the past two months suggests that the PBOC is
becoming more accommodative of yuan depreciation, Tan said. 
    The official guidance rate has weakened around 300 pips
since mid-May.

    
Key onshore vs offshore levels:
 * Overnight dollar/yuan swap onshore -8.00 pips vs. offshore
-8.00
 * Three-month SHIBOR 1.9 % vs. 3-month CNH HIBOR 3.1
%
   
LEVELS AT 0301 GMT    
    
 INSTRUMENT  CURRENT   UP/DOWN(-)    % CHANGE    DAY'S   DAY'S 
             vs USD    VS. PREVIOUS  YR-TO-DATE  HIGH    LOW
                       CLOSE %                           
 Spot yuan   7.2652           -0.07       -2.25  7.2619   7.2688