Yuan falls on talk state to limit gains

The yuan had its first monthly loss against the United States dollar since May 2006 on speculation weaker global demand will prompt the government to limit currency gains to protect exporters. Government bonds rose.

Slower growth worldwide will weigh on China's exports in the second half of 2008, Vice Commerce Minister Gao Hucheng said on Thursday. The yuan's 6.6-percent gain in the first half, which almost matched the advance for the whole of 2007, crimped profits at exporters and cooled sales abroad.

"It's obvious that the government is adjusting the pace of yuan appreciation against the dollar to make sure it won't do more harm to exports," Liu Dongliang, a foreign-exchange analyst in Shenzhen at China Merchants Bank Co, the country's sixth-largest lender, told Bloomberg News. "Most foreign trade transactions are settled in dollars."

The yuan fell 0.05 percent this month to 6.8350 per US dollar as of 5:30pm in Shanghai, according to the China Foreign Exchange Trade System. It weakened 0.11 percent yesterday, halting three days of gains.

China's exports may increase in the second half at the same pace as in the first six months of the year, Gao said in Beijing on Thursday. Overseas shipments rose 21.8 percent in the first half of 2008, slower than the 27.6 percent growth a year earlier.

The yuan is allowed to trade by up to 0.5 percent against the greenback either side of a daily reference rate, which was set at 6.8345 per US dollar yesterday.

China will start annual checks on how well domestic and foreign banks implement rules on foreign-currency controls, the State Administration of Foreign Exchange, the country's top currency regulator, said in a statement on its Website yesterday.

The government approved new foreign-currency controls on August 6 to tighten monitoring of cross-border capital payments and deter "illegal" inflows that seek to profit from the yuan's one-way appreciation.

Source:Xinhua