Yuan weakens vs dlr, China signals yuan appreciation pauses
* Opportunity to iron out domestic opposition for yuan rise* Yuan seen moving between 6.3375/dlr and 6.40 in near term* Yuan at 6.3813, still up 3.27 percent so far this yearBy Lu Jianxin and Jacqueline WongSHANGHAI, Oct 18 (Reuters) - The yuan closed down against the dollar on Tuesday after the central bank set a weaker mid-point, a move traders said signalled that the government was initiating a pause in yuan appreciation.China appears to hold the view that the yuan's exchange rate had been politicised after the U.S. Senate approved a controversial bill one week ago aimed at forcing Beijing to push the yuan higher against the dollar, traders said.In a related development, data on Tuesday showed China's economic expansion slowed in the third quarter to its weakest pace since the second quarter of 2009, offering an easy excuse for the country to slow yuan appreciation.And a pause in the yuan's rise could offer China's small exporters a breather after it rose around 30 percent versus the dollar since the Chinese currency's landmark revaluation in 2005 pushed many of them out of business, they said.Millions of Chinese work in tiny companies producing clothes, shoes, toys and other daily commodities that have an annual profit margin of less than 10 percent and could run into bankruptcy if the yuan appreciated at an annual ratio of 5 percent or more, traders said."The government apparently feels frustrated with U.S. politicians who appear never to be happy with what China has done about yuan appreciation," said a trader at a Chinese commercial bank in Shenzhen."While stopping yuan appreciation to watch what will happen next in the United States, it is a good opportunity for the government to iron out some domestic opposition to the rise."Spot yuan closed at 6.3813 versus the dollar, down from Monday's close of 6.3706. It has still risen 3.27 percent since the start of this year and 6.97 percent since it was depegged from the dollar in June 2010.Before trading began, the PBOC set the mid-point of the day at 6.3749, slightly weaker than Monday's 6.3710. The central bank uses the reference rate to signal the government's intentions for the yuan, which can rise or fall 0.5 percent from the mid-point in a day.OLD PATTERNChina had let the yuan appreciate as much as nearly 4 percent from the beginning of this year to Tuesday last week -- just ahead of the U.S. Senate's approval of its yuan bill.In contrast with previous years, the yuan's appreciation this year took place without U.S. prodding as China used the exchange rate to help it battle against imported inflation.Previously, China had let the yuan appreciate more as political concessions to the United States, most typically, ahead of major political events such as the meeting of the two nations' leaders or global summits.Such an old pattern is seen returning now, with traders saying it has become increasingly difficult to predict the yuan's movements in the future."As the yuan falls prey to politics, you don't know when it will appreciate or depreciate as its value will be less based on economic and market fundamentals," said a European bank dealer in Shanghai.Many traders said they were no longer sticking to their predictions made at the start of this year that the yuan could rise 5 to 6 percent versus the dollar for the year.In the near term, however, they expected the yuan to move between 6.3375 and 6.40 against the dollar. The 6.3375 level is the yuan's record high hit on Oct. 11, right ahead of the U.S. Senate's approval of its yuan bill.Offshore, one-year dollar/yuan non-deliverable forwards (NDFs) were bid at 6.3940 in late trade, up slightly from 6.3895 at the close on Monday.They implied yuan depreciation of 0.30 percent in 12 months from Tuesday's PBOC mid-point, compared with depreciation of 0.23 percent they implied on Monday.