The Wall Street Journal reported on Thursday that U.S. Treasury Secretary Steven Mnuchin discussed lifting some or all tariffs imposed on Chinese imports and suggested offering a tariff rollback during trade discussions. But the report was quickly denied by the Treasury Department.

Analysts at OCBC Bank said they retain the view that yuan would remain in "a consolidative mood", pending more concrete developments in the Sino-U.S. trade front.

A few traders also said the prevailing uncertainty over prospects for a trade deal between the world two biggest economies capped the yuan's gains on the day.

China's Vice Premier Liu He will visit the United States on Jan. 30 and Jan. 31 for the next round of trade negotiations.

Prior to market opening on Friday, the People's Bank of China (PBOC) set the midpoint rate at 6.7665 per dollar, 73 pips or 0.1 percent weaker than the previous fix of 6.7592.

In the spot market, the onshore yuan opened at 6.7720 per dollar and was changing hands at 6.7773 at midday, 17 pips firmer than the previous late session close.

If the onshore spot yuan closes out the late night session at the midday level, it would have lost 0.16 percent for the week, compared with a sharp rise of 1.54 percent a week earlier.

Traders said the dollar's broad performance and the Sino-U.S. trade tensions remained the two key factors driving the yuan for now, as the impact from corporate flows faded.

Companies usually convert their dollars for the local currency to meet a myriad of payments and financing needs ahead of the Lunar New Year holiday, which starts in early February this year.

FX strategists at Morgan Stanley said they turned bullish on the yuan.

"The PBOC is likely to have a hands-off approach on CNY during the trade negotiations and find it difficult to remove the countercyclical factor," they said in a note.

The factor, first introduced by the PBOC in May 2017, is designed to curb speculation and volatility in the yuan.

The Morgan Stanley analysts said the central bank has an incentive to keep the yuan stable to encourage foreign capital inflows.

The dollar index <.DXY> was down at 96.063 at midday from the previous close of 96.065.

The offshore yuan was trading at 6.784 per dollar as of midday.

(Reporting by Winni Zhou and John Ruwitch; Editing by Shri Navaratnam)