By Nathaniel Taplin and Samuel Shen
SHANGHAI (Reuters) - China's yuan steadied on Friday as fears of a market meltdown faded thanks to central bank support for the currency during the week, though Chinese shares dropped after weaker-then-expected bank lending data and falling oil prices unsettled markets.
Slight gains in early early trade put the yuan 0.1 percent up on the week, but it was still nearly 1.4 percent weaker against the dollar than it started the year and has lost nearly 5 percent since August.
The turbulent start to 2016, with the currency and stock markets tumbling, had stoked concerns that Beijing's policymakers were in danger of fumbling as the country headed toward its slowest growth in 25 years.
The International Monetary Fund called on China to be clearer about its exchange rate policy.
"More clarity and communication around the exchange rate regime would be useful," IMF spokesman Gerry Rice told a regular news briefing in Washington on Thursday.
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The People's Bank of China (PBOC) set a slightly weaker mid-point rate for the yuan on Friday, but the fix has been broadly steady for more than a week, signalling a determination to hold the line against expectations of sustained depreciation.
Dealers expected the yuan would resume its decline if the central bank loosened its grip.
The midpoint for the tightly managed currency was set at 6.5637 per dollar on Friday, weaker than the previous fix of 6.5616 but 253 pips stronger than Thursday's closing quote 6.5890.
The spot market was changing hands at 6.5867 in afternoon trade, 23 pips firmer than the close. The spot rate is allowed to deviate 2 percent either side of the daily fix.
"The key for the spot rate's move is the central bank's attitude," said a dealer at an Asian bank in Shanghai.
"Once it stops holding the midpoint, the spot rate is likely to drop back and break through 6.6 in the short-term."
Offshore yuan liquidity was squeezed earlier in the week as a result of state-backed banks buying, at the central bank's behest, to push overnight borrowing rates in Hong Kong to record highs, making it prohibitively expensive to bet against the yuan.
That squeeze has narrowed the gap with the onshore market, though on Friday the offshore yuan was trading a little weaker, and about 0.4 percent below the onshore spot at 6.6135 per dollar.
Traders said the offshore yuan weakened probably because of strong dollar demand, and expectations that the yuan would weaken going forward.
STOCKS NEAR 2015 LOWS
Other Asian share markets were briefly buoyed on Friday when oil prices rallied overnight, but they gave up their gains when oil resumed its collapse, reigniting fears about the health of the global economy.
China's main indexes opened lower and extended their fall in the afternoon session. The Shanghai Composite Index was down 2.5 percent, while the CSI300 index shed 2.4 percent.
"Some sense of stability does seem to have been wrestled into the Chinese yuan this week, but the Chinese equity markets have been more immune to muscular shows of state intervention," said Angus Nicholson, market analyst at IG.
Upbeat economic figures earlier in the week, including forecast-beating trade and inward investment data, had tempered some of the fears about the slowdown in the world's second-largest economy, but Friday brought news that fresh lending by Chinese banks was weaker than expected in December and well down on the previous month.
China's economic growth is expected to slow to 6.5 percent in 2016 from a forecast 6.9 percent in 2015, prompting the government to ease policy further, a Reuters poll showed.
The IMF spokesman said that while China's rebalancing of its economy has been bumpy, the IMF's view of the country's economic fundamentals were unchanged. If Beijing's own growth target slips, however, the IMF would recommend fiscal stimulus, he said.
China's major share indexes have lost about 16 percent so far in 2016 and are not far from their 2015 lows, chalked up in August after losing more than 40 percent from early June.
The August low might have been lower still, had regulators not wheeled out a raft of measures to support the market, and some think Beijing would do the same again to stop the indexes breaching those levels.
Weekly data from the Shanghai Stock Exchange shows money shifting into exchange traded funds (ETFs) tracking bonds, gold and money markets at the start of January.
(Reporting by Nathaniel Taplin and Samuel Shen; Writing by Will Waterman; Editing by Simon Cameron-Moore)