SHANGHAI, May 18 (Reuters) - China"s yuan strengthened on Tuesday as investors tempered earlier expectations that the U.S. central bank could hike interest rates soon, weighing on the dollar. But traders said a robust U.S. economic recovery and strong commodities would put a floor under a falling dollar index. "There"s likely to be a limit to the downside for the U.S. dollar," said a trader at a foreign bank, adding that the greenback was biased toward rangebound fluctuation. "The yuan also shouldn"t have far to run." Dallas Federal Reserve President Robert Kaplan on Monday reiterated that he does not expect interest rates to rise until next year, fuelling a further decline in bets that inflationary pressure could force the Fed to act sooner. That put a drag on the dollar, which had earlier rallied on expectations that the Fed could move to raise rates in response to hotter-than-expected inflation data. The global dollar index fell to 90.11 from the previous close of 90.184. Before the market open, the People"s Bank of China set the yuan"s daily midpoint at 6.4357 per dollar, weaker than the previous fix of 6.4307. Spot yuan opened at 6.4324 per dollar and strengthened to 6.4278 by midday, 116 pips firmer than Monday"s late session close. The offshore yuan firmed to 6.428 per dollar from a close of 6.4414. Ken Cheung, Asian FX strategist at Mizuho Bank, said the yuan was also helped by China"s robust growth momentum and the country"s resilience to the resurgence of COVID-19 infections in Asia. Analysts and traders also say that relatively tight cash conditions ahead of monthly tax payments due this week continue to provide some support for China"s currency. "How tight funds will get depends on how the central bank offsets," analysts at Jianghai Securities said in a note. "But even if we rely on the market to self-regulate liquidity levels, this crunch will not last too long." On Tuesday, the volume-weighted average rate of the benchmark overnight repo traded in the interbank market was at 2.111%, just shy of more than two-week highs touched a day earlier. The yuan market at 4:37AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.4357 6.4307 -0.08% Spot yuan 6.4278 6.4394 0.18% Divergence from -0.12% midpoint* Spot change YTD 1.56% Spot change since 2005 28.76% revaluation Key indexes: Item Current Previous Change Thomson 97.45 97.4 0.1 Reuters/HKEX CNH index Dollar index 90.11 90.184 -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 6.428 0.00% * Offshore 6.606 -2.58% 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; Additional reporting by Jindong Zhang; Editing by Sam Holmes) Our Standards: The Thomson Reuters Trust Principles.