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SHANGHAI, May 10 (Reuters) - Currency markets are reading subtle signals from Chinese authorities as an indication they are slowly nudging the yuan lower to regain export competitiveness, but analysts say protracted yuan weakening is neither the intent nor desirable.

The biggest signal of tolerance for a weaker yuan has come via the People's Bank of China's (PBOC) daily reference rate , or fixing, around which the yuan is allowed to trade.

Having used the fixing to contain the yuan's fall from November even as currencies of trade rivals such as Japan and South Korea tumbled, the PBOC's fixings have since mid-April become less rigid and even slightly biased to weaken the currency.
State-owned Chinese banks, which frequently step into markets to buy the yuan, have also been less conspicuous.

Based on nominal exchange rates, a bit of yuan depreciation makes sense. It has declined about 2% against the dollar this year, but an index of its value against its major trading partners (.CFSCNYI) is up nearly 3%, given the sharp 9% drop in the Japanese yen and the Korean won's 5% drop against the dollar in that period. Advertisement · Scroll to continue "The PBOC will likely continue to allow the yuan to soften modestly against the dollar at the pace that the central bank feels comfortable with," said Tommy Wu, senior China economist at Commerzbank. "This is especially true given that the currencies of China's trading partners have depreciated against the dollar, which in turn pushed up the yuan currency basket."

Several global investment banks expect the tightly managed yuan to drop to 7.3 per dollar in the coming months, about 1% weaker than current levels around 7.22.

Wall Street closed higher Thursday after weekly jobless claims data offered fresh hope for interest rate cuts.00:0201:53

That's a modest decline, reflecting what most analysts suspect is the PBOC's mindfulness of the risks a weak currency while keeping an eye on trade competitiveness. "We do not expect to see any significant one-off depreciations, instead a willingness for it to move gradually, and for the currency to weaken, but with lower volatility," said Nathan Swami, head of currency trading at Citi. The PBOC did not immediately respond to Reuters request for comments.