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Yuan gains most since June as China favors greater volatility

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Yuan gains most since June as China favors greater volatility

China’s yuan strengthened for the first time in six days, climbing the most since June, on speculation the central bank favors two-way fluctuations in the exchange rate to deter speculative inflows of capital.

The People’s Bank of China set the reference rate for yuan trading at 6.7979 per dollar, 0.12 percent stronger than yesterday, as the greenback fell against all 16 major currencies tracked by Bloomberg. Xia Bin, a central bank adviser, said more flexibility will help reduce appreciation expectations, the People’s Daily Overseas Edition reported on Aug. 13.

“The rising fluctuations will increase uncertainties in the exchange rate and ease hot money inflows,” said Guan Jiaying, a currency analyst in Beijing at China Citic Bank Co., a unit of China’s biggest state investment company. “The central bank is seeking to maintain the yuan’s stability against a basket of currencies.”

The yuan strengthened 0.20 percent to 6.7948 per dollar as of 1:25 p.m. in Shanghai, the biggest gain since June 30, according to the China Foreign Exchange Trade System. Twelve- month non-deliverable forwards jumped 0.22 percent to 6.6797, reflecting bets the currency will strengthen 1.7 percent from the spot rate in a year, according to data compiled by Bloomberg.

The currency dropped a minimum 0.15 percent on each of the last three trading days, following daily moves of less than 0.1 percent from July 5 through Aug. 11.

China loosened control on the exchange rate on June 19, after keeping the currency at about 6.83 per dollar for almost two years. The yuan has since strengthened 0.5 percent.

Bonds Stable

Government bonds were little changed after the central bank kept the yield on its one-year bills at 2.0929 percent for a 10th straight week.

The People’s Bank of China sold 44 billion yuan ($6.5 billion) of the securities today at a yield that’s remained unchanged since June 8.

Consumer prices rose 3.3 percent last month from a year ago, compared with 2.9 percent in June, the statistics bureau reported last week. Industrial output climbed 13.4 percent, the smallest gain in 11 months.

“There is no clear direction in the debt market as we don’t have good or bad news to move it,” said Chen Liang, a Shenzhen-based bond analyst at Guohai Securities Co. “Some people are concerned about the slowing economy and some have worries about inflation.”

The yield on the 2.33 percent note due in June 2013 was 2.31 percent, and the price of the security was 100.05 per 100 yuan face amount, according to the National Interbank Funding Center.

Benchmark money-market rates rose for a fourth day. The seven-day repurchase rate, which measures lending costs between banks, climbed two basis points, or 0.02 percentage point, to 1.8 percent, the funding center’s daily published fixing rate showed.

Source: noir.bloomberg.com

Publication date: 8/17/2010

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