(Correcgts year to 2020 in healdine and lead) SHANGHAI/BEIJING, Dec 31 (Reuters) - The yuan was set to post a gain of 6.5% against the dollar for 2020, firming again on the last day of the year despite traders reporting that some state banks bought dollars earlier trade to prevent the Chinese currency from rising too fast. The onshore spot yuan finished its domestic trading session at 6.5398 per dollar, and barring a calamitous fall in the late night trading the yuan was set to show its first annual gain after two years of falls. The yuan owes its strength this year to the broadly weaker dollar, the widening yield gap between China and the United States and China’s effective coronavirus containment. Traders said strength in the yuan in early trade on Thursday mostly reflected the dollar’s movements in global markets as investors wagered a global economic recovery would suck money into riskier assets even as the yawning U.S. twin deficits argue for an ever cheaper currency. Traders told Reuters that China’s major state-owned banks were seen buying dollars at a rate of about 6.52 yuan in morning trade. A trader at a foreign bank said the major state-run banks’ actions in the spot market were not meant to reverse the yuan’s appreciation trend but rather slow the rapid rallies. “But given the current dollar trend, USD/CNY is likely to fall after the New Year holiday,” the trader said. Multiple traders said 6.52 per dollar is widely seen as the ceiling for the yuan for now. A breach of that level would bring in sight the 6.5 levl that traders consider to a red line for China’s authorities. Earlier gains in the yuan on Thursday were also supported by solid economic data. China’s factory activity expanded in December as hot export demand fueled a recovery in the world’s second-largest economy. Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.5249 per dollar, firmer than the previous fix of 6.5325.