WRAPUP 2-China's yuan jumps on Sino-US trade talk news, stocks pare gains

SHANGHAI, Sept 13 (Reuters) - China's yuan strengthened on Thursday after the Trump administration invited Chinese officials to restart trade talks, but the country's main stock indexes took a more cautious approach ahead of the outcome of negotiations.

The yuan had opened at a near one-week high against the U.S. dollar, supported as well by a firmer official yuan midpoint setting by the central bank.

China's benchmark stock indexes jumped over 1 percent at one point but quickly pared gains.

The benchmark Shanghai Composite index was up just 0.1 percent at the midday break, after ending at its lowest close since January 2016 on Wednesday, with investors bracing for the activation of more U.S. tariffs.

The blue-chip CSI300 index was flat, weighed down by healthcare shares. The CSI300 healthcare sub-index was 4.2 percent lower at midday, with 22 out of its 23 constituents falling.

Shares in medical equipment maker Lepu Medical Technology Beijing Co Ltd fell 10 percent to a six-month low, though they remain up nearly 18 percent in the year to date, handily outperforming the broader market.

Consumer shares fell 0.5 percent and real-estate firms were 0.2 percent lower.

Investors in Hong Kong showed more optimism, with Chinese H-shares rising 1.8 percent at midday, while the Hang Seng Index gained 1.5 percent.

Hong Kong's market got a boost from strong gains in index heavyweight Tencent Holdings, which rose 3.1 percent after Tencent-backed Chinese online food delivery-to-ticketing services firm Meituan Dianping raised $4.2 billion in the world's biggest internet-focused IPO in four years, according to people close to the deal.

ROAD AHEAD STILL TRICKY

But broader market attention remained focused on trade after the Trump administration invited Chinese officials to restart trade talks, the White House's top economic adviser said on Wednesday, as Washington prepares to escalate the U.S.-China trade war with tariffs on $200 billion worth of Chinese goods.

News of a fresh round of talks supported the yuan and pressured the dollar, though few market watchers were optimistic of a breakthrough after several earlier meetings made little headway.

"While we agree this should provide short term relief, the road ahead can still be tricky," Tai Hui, chief market strategist for JP Morgan Asset Management, said in a morning note.

"China did provide concessions earlier in the year to buy more U.S. products and reduce the bilateral deficit as well as opening up markets to foreign companies. If this did not satisfy the US six months ago, China may not be able to offer much more than that, especially if this involves adjusting its Made in China 2025 policy."

But a trader at a Chinese bank said market sentiment had improved following the latest developments, particularly as the proposed meeting was set to be between higher-level officials, giving the market hope that the talks could yield a breakthrough.

Prior to the market opening on Thursday, the People's Bank of China (PBOC) set the midpoint of the currency's daily trading band at 6.8488 per dollar.

That was 58 pips firmer than the previous fix of 6.8546, and largely in line with market forecasts following a fall in the dollar overnight, traders said.

In the spot market, the onshore yuan opened at 6.8327 per dollar, its strongest level since Sept. 7, and was trading at 6.8450 per dollar at 0409 GMT.

"Admittedly, the RMB market will likely remain highly uncertain in the rest of this year, depending on how the China-U.S. trade war unfolds," Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong said in a note.

He said the yuan would be unlikely to fall below 7 per dollar "given (the) PBOC's clear stance to defend the RMB."

The offshore yuan, which is more freely traded, booked its best day in 2-1/2 weeks on Wednesday, with strong gains in the U.S. session after the trade talks news emerged.

On Thursday, it had weakened 0.1 percent from its U.S. close to 6.8430 per dollar as of 0420 GMT.

Traders said the offshore yuan was trading firmer than its onshore counterpart despite signs of loosening offshore liquidity.

Large state-run Chinese banks had been swapping dollars for yuan in offshore forward markets for over a week, soaking up supply and raising the cost of shorting the Chinese currency.

Traders said they did not see signs of such operations on Thursday, and said yuan borrowing costs had also returned to normal levels.