China's yuan steadies on signs domestic demand picking up

SHANGHAI, March 18 (Reuters) - China's yuan held steady against the struggling dollar on Tuesday, buoyed by encouraging domestic economic data and fresh stimulus to support consumption.

However, worries over a possible escalation of trade disputes with the United States continued to weigh on sentiment and market participants refrained from making huge bets on a stronger yuan, currency traders said.

U.S. President Donald Trump has piled an additional 20% of tariffs on all Chinese goods and is threatening more action, including imposing reciprocal duties on U.S. trading partners in early April.

"As long as China does not engage in strong tit-for-tat actions, the yuan seems to be relatively stable," Maybank analysts said in a note.

As of 0351 GMT, the onshore yuan CNY=CFXS was 0.1% lower at 7.2332 per dollar, while its offshore counterpart CNH=D3 traded at 7.2345.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.1733 per dollar, and 631 pips firmer than a Reuters' estimate CNY=RTRS of 7.2364.

"Given the PBOC's reaction so far, we think Chinese policy makers will primarily rely on other tools to offset the potential adverse growth impact from U.S. tariffs, as opposed to relying heavily on the FX lever, with the risk that the renminbi could even move stronger as an outcome of the mooted presidential summit later in the year," analysts at Goldman Sachs said in a note.

They revised their forecasts for the yuan higher to 7.35 on a six-month and 12-month horizon from 7.4 previously, while maintaining their three-month view of 7.3 unchanged.

Separately, official data showed that companies remained unwilling to settle their foreign exchange in February as Chinese commercial banks sold a net $10.4 billion to their clients.

"A more positive development, such as the resumption of China-U.S. trade talks or a recovery in China's growth, will be needed to trigger a wave of FX settlement flow," Ken Cheung, chief Asian FX strategist at Mizuho Bank.

Key onshore vs offshore levels:

• Overnight dollar/yuan swap onshore -5.26 pips vs. offshore -5.26
• Three-month SHIBOR SHIBOR= 2 % vs. 3-month CNH HIBOR 2 %

LEVELS AT 0351 GMT: