China’s yuan firmed on Monday after the central bank set a stronger guidance rate while it also appeared to continue using state-owned banks to support the Chinese currency, traders said.

For August, the currency is set to depreciate 2.7 per cent if it closes at the midday level. Most of the losses came after the People’s Bank of China (PBOC) surprised markets by devaluing the yuan by nearly 2 per cent on August 11.

“Major state-owned banks bought a large amount of yuan this morning,’’ said a trader at an Asian bank in Shanghai.

These banks were suspected of intervening on behalf of the central bank around 6.38 against the dollar, several traders said.

The PBOC set the midpoint rate at 6.3893 per dollar prior to market open, 0.15 per cent firmer than the previous fix 6.3986.

The spot market opened at 6.3890 per dollar and was changing hands at 6.3805 at midday, 0.13 per cent stronger than the previous close.

After the abrupt devaluation on August 11, Beijing appears to have been so surprised by the global reaction that it tends to keep the yuan on a tight leash to head off a currency war that could spark a broader financial crisis, policy insiders say.

Premier Li Keqiang reiterated at the weekend earlier remarks that there’s no basis for continued depreciation of the yuan following its devaluation. The yuan “will stay basically stable as a reasonable and balanced level’’, he said.

Most market watchers, however, believe there is political pressure for it to weaken further to support exports and reflecting expectations of further policy easing.

The offshore yuan was trading 1.03 per cent weaker than the onshore spot at 6.4469 per dollar by midday. Offshore one-year non-deliverable forwards contracts, considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.6075, or 3.30 per cent weaker than Monday's midpoint.