The currency fell to a low of 6.3124, down 0.54 percent from the fixing. The trading band was widened to 1.0 percent from 0.5 percent on April 16 but the currency waited two weeks to break through the previous limit.

Spot yuan opened at 6.3055 per dollar, only 5 points stronger than Thursday's close, despite a midpoint of 6.2787, up 0.07 percent from the prior fix.

The yuan's midpoint typically rises in response to overnight weakening in the dollar index .DXY, and the index was down 0.118 percent on Thursday night.

Traders believe that the decision to set a new record high on Friday was not market-driven.

Two traders at Chinese banks said the central bank's move was a political gesture prior to the opening of the annual U.S.-China Strategic and Economic Dialogue next week.

A trader at a major European bank in Shanghai said regulators were also pushing the midpoint up to reinforce confidence in the currency's upward trend.

"The PBOC has set the yuan's fixing at much higher levels than the currency's trading rates recently to curb expectations that the yuan might depreciate this year, given concerns over China's economic slowdown."

One year non-deliverable spot forwards (NDFs), which some consider an indicator of the yuan's future value, traded at 6.3495 near midday, implying a depreciation of 0.58 percent from the spot rate.

However, many market players believe that NDFs are no longer reliable as a predictive tool and should be viewed primarily as a tool for hedging or speculation.

Offshore yuan (CNH) continues to trade close to the onshore version, following the onshore yuan down to 6.3135 in afternoon trading.

(Additional reporting by Lu Jianxin; Editing by Ramya Venugopal)

• A Permanent Economic Emergency