* Yen eases after China sets stronger yuan guidance rate
* Offshore yuan on track for biggest daily gain on record
* Worries linger over further depreciation
* Dollar gains against euro, falls against Aussie (Adds further quotes, updates prices)
By Patrick Graham
LONDON, Jan 11 (Reuters) - China's yuan turned sharply higher on foreign exchange markets on Monday, heading for its biggest daily gain in four months against the dollar in offshore trade after reports of another round of aggressive intervention by Beijing.
With Chinese stocks sinking a further 5 percent, global financial markets were struggling to shake off the jitters from last week's dramatic falls in the yuan.
The dollar rose against the euro EUR= while the yen hit five-month highs in Asian trade JPY= only to retreat after moves by the People's Bank of China (PBOC) in Hong Kong in money markets helped the yuan gain more than 1 percent CNH= .
The Australian dollar, the main proxy for Chinese sentiment in the G10 list of major developed world currencies, recovered from a four-month low to stand 0.8 percent higher at $0.7013 AUD=D4 .
"The Chinese authorities clearly want to signal that it will not be a one-way trade in the renminbi," London-based Rabobank currency strategist Jane Foley said.
"But most people would recognise that were you to take away the interventions it is a currency that would fall."
The tightly controlled onshore rate for the yuan strengthened 0.35 percent to 6.5701 per dollar CNY= after the PBOC set its daily mid-point rate higher for a second day. Offshore rates gained 1.2 percent to 6.6030, rivalling the yuan's biggest one-day move upwards since the launch of the offshore market in 2010. CNH=D3
One big question traders and analysts are asking themselves is whether a volatile start to the year will continue now that all the market's major players are back at work.
At the very least the speed of the yuan's fall, and what it implies for other emerging currencies - including South Africa's rand, at a record low on Monday - is colouring the big theme for currency investors of divergence between monetary policy in the United States and the rest of the developed world.
The dollar gained 0.4 percent to 117.71 yen JPY= , having touched its lowest since late August at 116.70 yen. The euro eased 0.3 percent to $1.0898 EUR= , well above Friday's low of $1.0803.
Positioning data showed net bets on the dollar against the yen had already collapsed as of last Tuesday IMM/FX , but also that the market remains as in favour of the dollar against the euro as at any time since its peaks last March and April.
"The capitulation of yen shorts is significant but the bigger theme is that dollar-yen and euro-dollar may not be big drivers of FX trends in the days and weeks ahead," said Societe Generale (PA:SOGN)'s Kit Juckes.
"Rather, the focus is on what is happening in emerging markets and resource-sensitive currencies. There the dollar looks set to continue to gain." (Editing by Mark Heinrich)