SHANGHAI, Oct 8 (Reuters) - China"s yuan slipped in early trade on Friday as investors returned from a week-long holiday to play catch-up with broad strength in the greenback, but signs of positive developments in Sino-U.S. relations limited its losses. The dollar held steady against a basket of currencies ahead of U.S. labour market data due later in the session, with the dollar index trading not far from its one-year high. Prior to the market opening, the People"s Bank of China (PBOC) set the midpoint rate at 6.4604 per dollar, 250 pips or 0.39% firmer than the previous fix of 6.4854, the strongest level since Sept. 24. In the spot market, onshore yuan opened at 6.4490 per dollar and was changing hands at 6.4490 at midday, 10 pips weaker than the previous late session close last Thursday. Several currency traders said the dollar strength during the long Chinese holiday was offset by positive news on the relations between Beijing and Washington, while overall market sentiment had also improved. U.S. national security adviser Jake Sullivan and China"s top diplomat, Yang Jiechi, had their first face-to-face encounter this week since an unusually public and acrid airing of grievances in Alaska in March. Meanwhile, U.S. President Joe Biden and Chinese President Xi Jinping have agreed in principle to hold a virtual meeting before the year"s end. A trader at a Chinese bank said markets took the meetings as positive developments in the relations between the world"s two largest economies, as souring bilateral ties have been one of the key factors influencing the yuan in the last few years. "The Chinese yuan is likely to rally moderately versus the dollar in the weeks ahead," said Gao Qi, FX strategist at Scotiabank in Singapore. "The U.S. and China will likely revive the bilateral trade talks in the next three months, as the Phase 1 trade deal is set to expire at the end of this year." Earlier this week, U.S. Trade Representative Katherine Tai said she hoped to hold discussions soon with Chinese counterparts. By midday, the global dollar index rose to 94.249 from the previous close of 94.181, while the offshore yuan was trading at 6.4525 per dollar. The yuan market at 0405 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.4604 6.4854 0.39% Spot yuan 6.449 6.448 -0.02% Divergence from -0.18% midpoint* Spot change YTD 1.23% Spot change since 2005 28.34% revaluation Key indexes: Item Current Previous Change Thomson 99.97 99.95 0.0 Reuters/HKEX CNH index Dollar index 94.249 94.181 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 6.4525 -0.05% * Offshore 6.6382 -2.68% 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)