How vClient resolves host name?

I am using windows server 2003

I am trying to connect to the host (same machine as client) through vSphere and I have the below entry in host file

127.0.0.1 mydomain

But, vClient doesn't seem to honour this host file entry. It simply tries to hit the machines ip - 10.x.y.z:443 and the connection is rejected.

At the same time when I ping from command prompt, I get reply from 127.0.0.1 and not 10.x.y.z. Why is that vClient alone behaving differently?

I use vSphere 5.1