SHANGHAI, Jan 15 (Reuters) - The yuan inched up on Friday, reflecting softness in the dollar and underpinned by the China central bank"s decision to drain a small amount of cash from the banking system while keeping interest rates unchanged. The dollar"s recent rebound from a near three-year low faltered after Federal Reserve Chair Jerome Powell said on Thursday that an interest rate hike in the United States was coming "no time soon" and pushed back against suggestions the central bank might start tapering its bond purchases any time soon. Prior to the market opening, the People"s Bank of China (PBOC) set the midpoint rate at 6.4633 per dollar, 113 pips or 0.17% firmer than the previous fix of 6.4746. In the spot market, onshore yuan opened at 6.4673 per dollar and was changing hands at 6.4703 at midday, about 0.1% or 57 pips firmer than the previous late session close. If the yuan retains those gains into the late night close, it would have posted its third weekly gain by appreciating 0.1% to the dollar for the week. So far in the new year, it has firmed 0.9%, extending a near 7% rally in 2020. Earlier in the session, China"s central bank conducted a small net drain of medium-term loans in the banking system and kept the rates on the facility unchanged, reinforcing investors" views that it is slowly shifting to a tightening bias in monetary policy as economic activity bounces back to pre-pandemic levels. "This unexpected move by the PBOC may hint that the central bank"s monetary easing of the past year may be ending," Stephen Innes, chief global market strategist at Axi, said in a note. The PBOC"s move also lifted swap curve in forwards market. Expectations that the PBOC may prefer smaller liquidity fixes over more easing have strengthened since recent top policy meetings indicating scaled-back central bank support for the economy this year. Separately, some traders said markets would quickly shift their attention to an event-packed week ahead. China will release fourth-quarter gross domestic product (GDP) data and December activity readings on Monday. A Reuters poll showed that the economic recovery likely accelerated in the fourth quarter, driven by stronger demand at home and abroad and policy stimulus which is expected to provide a solid boost into 2021. Another market focus next week would be U.S. President-elect Joe Biden"s inauguration on Jan. 20, currency traders said, adding Sino-U.S. relations remained one of the key market topics. The yuan market at 0400 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.4633 6.4746 0.17% Spot yuan 6.4703 6.476 0.09% Divergence from 0.11% midpoint* Spot change YTD 0.90% Spot change since 2005 27.92% revaluation Key indexes: Item Current Previous Change Thomson 95.83 96 -0.2 Reuters/HKEX CNH index Dollar index 90.285 90.272 0.0 *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 6.4692 0.02% * Offshore 6.606 -2.16% 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 Winni Zhou and Andrew Galbraith; Editing by Kim Coghill)