China"s yuan swung from strong gains to losses on Tuesday as a robust rise against the U.S. dollar spooked traders and sparked profit-taking, a day after its surging value prompted some market players to question their forecasts for the currency. The yuan rose nearly 7% against the dollar in 2020, lifted by a wide yield advantage in Chinese debt over other developed markets and the economy"s rapid recovery from the COVID-19 pandemic. Traders said that the yuan"s strength on Monday - when it clocked a 1% rise against the dollar - and early on Tuesday was within forecasted ranges for the currency this year, but that expectations had been for steady, gradual appreciation. The sudden rise had thrown those expectations into disarray. On Tuesday morning, the People"s Bank of China (PBOC) lifted the onshore yuan"s trading band by 648 pips, or 1%, to 6.476 per dollar. It was the biggest one-day lift in the yuan midpoint since China abandoned a decade-old peg against the dollar in 2005, and the strongest official guidance in more than 30 months. Spurred on by the fixing, spot yuan opened at 6.4601 per dollar and jumped to 6.4292 in the morning session, its strongest since June 15, 2018. Its offshore counterpart surged more than 0.6% to break through the 6.42 level and touch 6.4127 per dollar, also its firmest since mid-June 2018. "The PBOC"s implicit tolerance of further RMB (yuan) rally below 6.50 in the new year just reinforced the RMB buying flow," said Ken Cheung, chief Asian foreign exchange strategist at Mizuho Bank. He said that the New York Stock Exchange"s decision to not move forward with the delisting of Chinese telecommunication giants also boosted the currency. But by midday, the onshore yuan"s gains had vanished, with the currency changing hands at 6.4622, just weaker than the previous late session close. The offshore yuan trimmed its gains and was trading at 6.443 per dollar. A trader at a foreign bank said the yuan"s sharp rally had unnerved market sentiment and prompted profit-taking, leading to the sharp turnaround by midday. But the lack of resistance from state banks or the PBOC to the rally suggested the currency would resume its march higher. "Dollar-yuan short positions are too concentrated, but the central bank is now definitely accepting of the yuan"s continued rise," said a trader at a Chinese bank. Cheung at Mizhuo said he expected the yuan to experience a "modest rally" in 2021, in contrast to the wild swings of the year"s first trading sessions. While it could strengthen to the 6.3 level on China"s strong growth and the hefty yield premiums on yuan-denominated assets, a vaccine could drag on its momentum as a wider global recovery narrowed China"s yield advantage, he said. The global dollar index fell to 89.765 from the previous close of 89.878. The yuan market at 4:14AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.476 6.5408 1.00% Spot yuan 6.4622 6.462 0.00% Divergence from -0.21% midpoint* Spot change YTD 7.75% Spot change since 2005 28.08% revaluation Key indexes: Item Current Previous Change Thomson 95.99 95.63 0.4 Reuters/HKEX CNH index Dollar index 89.765 89.878 -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 6.443 0.30% * Offshore 6.5845 -1.65% 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 Andrew Galbraith and Winni Zhou; Editing by Christopher Cushing)