BEIJING (Reuters) - China is considering allowing local commercial banks to participate in offshore yuan trade, the central bank said on Tuesday, as the country looks to project greater influence in the offshore currency market.

China has gradually loosened its capital controls in efforts to promote international use of its currency, but domestic banks can only participate in the offshore market through overseas subsidiaries, with trading kept separate from the tightly-controlled domestic yuan market.

The People's Bank of China (PBOC) said in a post on its microblog on Tuesday that it was studying the possibility of letting local commercial banks trade directly in offshore yuan in order to increase the two-way opening up of the foreign exchange market.

"Theoretically the moves will help narrow the spread between offshore and onshore if the mechanism to bring funds in and out of China works smoothly," said Ngan Kim Man, deputy head of treasury at China Everbright Bank in Hong Kong.

"But I think at the initial stage, the number of participant banks will be limited and quotas might apply if needed."

Indeed, the PBOC said it is looking at "orderly participation", indicating a gradual implementation of the policy.

China's foreign exchange regulator, which is an arm of the central bank, said in April it will take steps to develop its currency trading systems and promote the unification of yuan exchange rates in onshore and offshore markets.

China is looking to increase its sway in global yuan trading as bets by traders in the offshore market that the yuan would depreciate have put pressure on onshore rates. The PBOC conducted massive interventions in the offshore market to support the yuan earlier this year, spooking global investors and driving up market volatility.

Participation in offshore yuan trading by state-owned banks could give China additional weight in influencing global trading of the currency.

The China Foreign Exchange Trade System (CFETS) - which is a subsidiary of China's central bank - said earlier this month it was preparing to open branches in London and New York to promote the yuan's global status.

CFETS said in a statement that by expanding its network offshore, it aims to serve more overseas institutions and become a "main trading platform and pricing center" for the yuan globally.

(Reporting by Beijing Monitoring Desk and Michelle Chen in Hong Kong; Writing by Elias Glenn; Editing by Sam Holmes)