SHANGHAI, Oct 22 (Reuters) - China"s yuan lost some strength against the dollar on Friday after the FX regulator warned of possible action if the currency market is hit by greater fluctuations, but was still on course for its biggest weekly gain since May despite the setback. Wang Chunying, spokesperson for the State Administration of Foreign Exchange (SAFE), said "if the foreign exchange market faces relatively big fluctuations, (regulators) will roll out counter-cyclical adjustments at an appropriate time." She said China"s authorities were watching closely for bigger fluctuations due to policy tightening by major world economies. The SAFE comments prompted some speculators to withdraw bets on the yuan testing highs, and traders said Chinese authorities could be signalling some discomfort over the yuan"s strength. Prior to market opening, the People"s Bank of China (PBOC) set the midpoint rate at 6.4032 per dollar, 142 pips or 0.22% weaker than the previous fix of 6.3890. In the spot market, onshore yuan opened at 6.3921 per dollar and was changing hands at 6.3985 at midday, 65 pips weaker than the previous late session close. The yuan touched a high of 6.3794 per dollar on Wednesday, the strongest level since June 2. If the yuan finishes the late night session at the midday level, it would still have gained about 0.6% to the dollar for the week, for the best weekly performance since late May. Back then, a sharp rally in the yuan prompted the central bank to raise the FX reserve requirement ratio for financial institutions to 7% from 5% to stem gains. "Clearly, the pace of RMB appreciation remains a concern for the authorities," Terence Wu, FX strategist at OCBC Bank said in a note. "Nevertheless, so long as the services deficit on the BOP does not return, we may not see the RMB come under sustained pressure." Separately, highly-indebted China Evergrande Group"s found funds to pay interest on a U.S. dollar bond, according to a source, lifting sentiment and briefly supporting the yuan in initial trade, traders said. The offshore yuan rose to a high of 6.3870 before trading at 6.3954 per dollar by midday. The broad dollar index fell to 93.721 from the previous close of 93.741. The yuan market at 0409 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.4032 6.389 -0.22% Spot yuan 6.3985 6.392 -0.10% Divergence from -0.07% midpoint* Spot change YTD 2.03% Spot change since 2005 29.35% revaluation Key indexes: Item Current Previous Change Thomson 100.44 100.38 0.1 Reuters/HKEX CNH index Dollar index 93.721 93.741 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 6.3954 0.05% * Offshore 6.5823 -2.72% 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)