China's yuan almost touched a one-month high against the dollar in offshore trading on Monday, as the greenback weakened after soft U.S. jobs data last week, but some traders said the gains were likely temporary ahead of key economic data this week. The slower-than-expected nonfarm payrolls in the world's largest economy also raised market expectations that the Federal Reserve is likely to keep interest rates steady at its next policy meeting in December.

The Fed's monetary policy trajectory affects dollar and other major currencies, including the yuan. "The Chinese yuan strengthened against the U.S. dollar as the dollar retreated last week, offsetting the negative impacts driven by weaker-than-expected China PMI numbers," said Lin Li, head of global market research for Asia at MUFG. "In the near term, Chinese economic data releases will be key to watch as the market is trying to understand the pace of economic development, which will drive up USD/CNY volatility," Li said, referring to China's October trade and inflation data due later this week.

The offshore yuan rose to a high of 7.2827 per dollar, the strongest level since Oct. 10, before trading at 7.2888 around midday. Its onshore counterpart surged to a high of 7.2599 in late night trading on Friday and gave up some of the gains to settle at 7.2832 at midday on Monday. "Data-wise, Oct CPI and PPI is still very much watched for any signs that deflationary forces remain at work due to demand deficit at home," Maybank analysts said in a note.

"That could possibly dampen the recent rally that Asian FX staged post Fed and nonfarm payrolls." Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1780 per dollar, 16 pips firmer than the previous fix of 7.1796. But Monday's official guidance rate continued to come in much stronger than market had projected, a situation that has persisted for months, which analysts and traders interpreted as an official attempt to rein in yuan weakness. Monday's fixing was 1,088 pips firmer than Reuters estimate of 7.2868. "Yuan's relief in light of dollar weakness is likely to be temporary," said a trader at a Chinese bank. The yuan market at 0350 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 7.178 7.1796 0.02% Spot yuan 7.2832 7.28 -0.04% Divergence from 1.47% midpoint* Spot change YTD -5.26% Spot change since 2005 13.64% revaluation Key indexes: Item Current Previous Change Thomson 0.0 Reuters/HKEX CNH index Dollar index 105.077 105.021 0.1 *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 Instrument Current Difference from onshore Offshore spot yuan 7.2888 -0.08% * Offshore 7.109 0.97% non-deliverable forwards ** *Premium for offshore spot over onshore **Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. . (Reporting by Shanghai Newsroom)