SHANGHAI, July 14 (Reuters) - The yuan eased and looked set for its worst day in nearly three weeks, dragged lower by losses in the A-share market, while risk appetite also soured after renewed diplomatic tension between the United States and China.

Chinese shares fell in morning session, with both benchmark Shanghai Composite Index .SSEC and blue-chip CSI 300 Index .CSI300 falling more than 1%, as investors took profits after a torrid bull run. .SS

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 6.9996 per dollar, 31 pips or 0.04% weaker than the previous fix of 6.9965.

In the spot market, onshore yuan CNY=CFXS opened at 7.0120 per dollar and was changing hands at 7.0107 at midday, 127 pips weaker than the previous late session close.

If the yuan finishes the late night session at the midday level, it would have lost 0.18% to the dollar on the day, marking the biggest one-day weakening in percentage terms since June 24.

Yuan traders said the market continued to consolidate at around the key 7 per dollar level as better-than-expected trade data lent some support, preventing the yuan from sinking further.

China's exports unexpectedly rose in June as overseas economies reopened after lockdowns, while imports grew for the first time this year, reinforcing views the recovery from the pandemic is gaining traction in the world's second-largest economy.

However, analysts at Huatai Securities pointed out that Sino-U.S. relations would remain the key factor leading yuan's movements in the remainder of the year.

The United States on Monday rejected China's disputed claims to offshore resources in most of the South China Sea, a move that Beijing criticized as inciting tensions in the region and which highlighted an increasingly testy relationship.

The global dollar index =USD rose to 96.56 at miday from the previous close of 96.553.

The offshore yuan CNH=D3 was trading at 7.0126 per dollar by noon.

The yuan market at 0409 GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

6.9996

6.9965

-0.04%

Spot yuan CNY=CFXS

7.0107

6.998

-0.18%

Divergence from midpoint*

0.16%

Spot change YTD

-0.68%

Spot change since 2005 revaluation

18.06%

Key indexes:

Item

Current Previous Change Thomson Reuters/HKEX CNH index 92.59 92.6 0.0 Dollar index 96.56 96.553 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 CNH= * 7.0126 -0.03% Offshore non-deliverable forwards CNY1YNDFOR= ** 7.1474 -2.07% *Premium for offshore spot over onshore CNY=CFXS **Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. CNY=SAEC. (Reporting by Winni Zhou and Andrew Galbraith; Editing by Simon Cameron-Moore) ((winni.zhou@thomsonreuters.com; +86 21 2083 0100; Reuters Messaging: winni.zhou.thomsonreuters.com@reuters.net))

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