China's yuan weakens as dollar rebounds, disappointing data weighs

China's yuan eased on Friday as the U.S. dollar rebounded and a flurry of domestic data pointed to weaker retail sales and investment, suggesting the world's second-largest economy is still struggling for traction.

The spot yuan USDCNY opened at 7.2300 per dollar and was changing hands at 7.2267 at midday, 68 pips weaker than the previous late session close and 1.72% away from the midpoint.

The greenback rose overnight after data showed U.S. import prices increased 0.9% last month, an increase that raised concerns the Federal Reserve could delay plans to cut interest rates.

Moreover, most Chinese data released during morning trade disappointed to the downside.

Factory output topped forecasts in April, helped by improving external demand, but retail sales unexpectedly slowed and the property sector remained a heavy drag on the economy, piling pressure on Beijing to do more to support growth.

Separate data showed China's new home prices fell at the fastest monthly pace in over nine years.

The market is closely watching a reported high profile meeting to be held later on Friday by the State Council to address property market issues, including a proposal to clear excess housing inventory.

Prior to the market open, the People's Bank of China set the midpoint rate USDCNY, around which the yuan is allowed to trade in a 2% band, at 7.1045 per U.S. dollar prior to market open, weaker than the previous fix 7.102.

The yuan has lost 1.8% against the dollar so far this year, pressured by its relatively low yields versus other currencies and the struggling economy.

Meanwhile, China's finance ministry auctioned the first batch of its special treasury bonds on Friday to finance a long-awaited stimulus programme.

Given the lack of details on how government will help clear the housing inventory including the source of funding, "we remain cautious on the yuan," Barclays analysts said in a note.

The global dollar index DXY rose to 104.623 from the previous close of 104.462.

The offshore yuan USDCNH was trading -0.06% away from the onshore spot at 7.231 per dollar.

The yuan market at 0351 GMT:

ONSHORE SPOT:

*Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People's Bank of China (PBOC) allows the exchange rate to rise or fall 2% from official midpoint rate it sets each morning.

OFFSHORE CNH MARKET

*Premium for offshore spot over onshore USDCNY

**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. USDCNY.