* Offshore yuan market sinks 0.7 percent
* Expectations of further steady devaluation
* Euro touch higher after fall back from $1.10
* Yen falls back against dollar and euro
By Patrick Graham
LONDON, Dec 11 (Reuters) - China's yuan fell another half percent against the dollar in offshore trade on Friday after authorities set the mid-point for the currency's tightly controlled official onshore value at its lowest in more than four years.
Elsewhere on major currency markets, the euro was a touch higher against the dollar EUR= after pulling back from a rise above $1.10 earlier this week. Both the euro and dollar gained ground on the yen.
The yuan's slide now adds up to 2 percent in just over a week, a large move compared to the normally tight ranges kept by the People's Bank of China and more evidence that Beijing is set on the substantial devaluation predicted by many major banks.
That all looks to have been triggered by the approval of the yuan for inclusion in the International Monetary Fund's basket of reserve currencies on Nov. 30, for which bankers say China was keeping yuan rates steady.
"I said after the one-off devaluation in August that this would be a long road and so it is proving," said Neil Mellor, a currency strategist with Bank of New York Mellon (N:BK) in London.
"It wouldn't surprise me if they continued to let it fall. China has enormous structural problems. This devaluation is happening because it clearly is needed if they want to meet their growth targets."
The yuan, also known as the renminbi or RMB, was 0.7 percent weaker offshore at 6.5373 per dollar CNH=D3 after London traders came online, following a 0.3 percent weakening of the onshore rate to 6.4538.
Traders say that speculators who trade on the difference between the two rates are unwilling to push it past 1,000 ticks, judging authorities would be liable to intervene at that point. That makes levels around 6.55 a strong initial support for the yuan, they say.
The euro was a touch higher at $1.0959 EUR= and has traded in a fairly tight range since falling back from a first break above $1.10 on Wednesday.
The common currency was still poised to end the week on a 0.7 percent gain, having soared after the ECB delivered a much-tamer-than-expected monetary easing package late last week and disappointed euro bears.
The greenback may have suffered big losses against the euro this week but the seemingly inevitable divergence in U.S. and European monetary policy was expected to continue supporting the dollar in the longer term.
The Federal Reserve is widely expected to hike interest rates next week for the first time in nearly a decade.
"Unless a powerful dollar-bearish factor emerges, the euro's recent bounce is likely to peter out," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
The dollar was up 0.3 percent at 121.99 yen but was still on track for a 1 percent weekly loss versus the yen. The safe-haven Japanese currency attracted bids this week as a slide in commodity prices bruised investor risk appetite.