Yuan inches up as stock rally offsets weak data, trade talks in focus

China's yuan firmed slightly against the dollar on Monday, buoyed by a rebound in domestic equities, as investors shrugged off soft economic indicators and turned their attention to trade talks between Beijing and Washington.

China's factory output and retail sales missed expectations in August, reviving calls for further stimulus to shore up growth in the world's second-largest economy, which faces weak consumption and external risks.

"The broader picture is still one of strong Chinese equity market sentiment offsetting the soft macro numbers, helping the CNY to some extent," MUFG analysts said in a note.

The spot yuan USDCNY opened at 7.1240 per dollar and was trading 41 pips firmer than the previous late session close and 0.21% weaker than the midpoint.

China's stock market has been on a bull run since September last year, with the benchmark CSI 300 index climbing to its highest in 3-1/2 years on Monday, buoyed by investors' optimism on tech shares and policy support.

The dollar held steady on Monday ahead of a pivotal week filled with central bank decisions led by the Federal Reserve.

The offshore yuan USDCNH should take cues from broader dollar moves and the US-China trade talks, UBS analysts said in a note.

U.S. and Chinese officials concluded a first day of talks in Madrid on Sunday on strained trade ties and a looming divestiture deadline for Chinese short-video app TikTok, amid Washington's demands for import tariffs by allies on China, over its purchases of Russian oil.

The talks came after China started an anti-discrimination investigation into U.S. trade policy over chips on Saturday, as well as a separate investigation into dumping.

Prior to the market opening, the People's Bank of China set the midpoint rate USDCNY at 7.1056 per dollar, 157 pips firmer than a Reuters' estimate. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

The offshore yuan traded at 7.1205 yuan per dollar USDCNH, up about 0.07% in Asian trade.

The dollar index DXY, which measures the greenback against a basket of six currencies, was 0.030% lower at 97.63.

LEVELS AT 0300 GMT