Aug. 10 (Bloomberg) -- China's trade surplus surged 67 percent in July to the second-highest on record, bolstering U.S. Treasury Secretary Henry Paulson's case for a faster appreciation of the yuan.

The gap widened to $24.4 billion from $14.6 billion a year earlier, the General Administration of Customs said today on its Web site. That was more than the $23.1 billion median estimate of 18 economists surveyed by Bloomberg News.

A stronger currency would ease tensions with the U.S. and curb the flood of export cash that may stoke inflation and asset bubbles. Paulson told Chinese leaders in Beijing last week to raise the currency's value without delay and the Senate Finance Committee has approved legislation to press for faster gains.

``Congress is getting more hostile and China will have to do more to reduce the trade surplus,'' said Shuji Tonouchi, senior economist at Mitsubishi UFJ Securities Co. in Tokyo. ``I expect the yuan to appreciate at a quicker pace.''

The yuan fell 0.21 percent to 7.5808 against the dollar as of 4:11 p.m. in Shanghai. It has gained 9.2 percent versus the U.S. currency since the scrapping of a fixed exchange rate in July 2005, compared with the yen's 4.8 percent decline, the rupee's 7 percent rise and the euro's 12.7 percent gain.

The surplus narrowed from June's record $26.9 billion when businesses rushed to beat cuts to export incentives. The gap was $14.4 billion with the U.S. and $12.2 billion with Europe.

Toys, Toothpaste

Exports jumped 34.2 percent in July, the fastest pace in five months, to a record $107.7 billion. Imports gained 26.9 percent, the biggest increase in six months. Oil imports climbed 39 percent to a record.

For the first seven months, the trade surplus grew 81 percent to $136.8 billion. China's M2 money supply, the broadest measure, grew 18.5 percent in July, the fastest pace in more than a year, the central bank said today.

U.S. manufacturers accuse China of holding down the currency's value to spur overseas sales. China says it will make the yuan more flexible at its own pace. Safety concerns in the U.S. over imports from China including toys, tires, toothpaste and seafood have added to friction.

The Senate Finance Committee on July 26 approved legislation that would put higher duties on Chinese imports to compensate for what lawmakers say is an undervalued currency.

Trade surpluses have pushed China's foreign-currency reserves to a world record $1.3 trillion and the nation held $407 billion of U.S. Treasuries in May.

Bush, Paulson

President George W. Bush and Paulson this week dismissed speculation that China may dump the securities. Xia Bin, a government researcher, has suggested using the reserves as a ``bargaining chip in response to some silly U.S. senators.''

Selling Treasuries could weaken the U.S. currency, diminish the value of China's dollar-denominated assets and accelerate yuan gains.

Surging overseas sales helped the world's fourth-largest economy expand 11.9 percent in the second quarter and flooded the financial system with cash.

Inflation probably accelerated in July to 5.6 percent, the fastest pace in 10 years, according to a report today in the official China Securities Journal that cited unidentified people. The figure is due Aug. 13.

Soaring Stocks

The benchmark CSI 300 stock index has climbed more than 130 percent this year.

The People's Bank of China has raised interest rates three times this year and ordered lenders to set aside larger reserves on six occasions.

China's leaders have pledged to boost domestic consumption and imports to narrow the trade surplus. The nation is also curbing exports of the most labor-intensive products, the Ministry of Commerce said last month. China reduced export tax rebates on 2,831 types of products from July 1.

``Tinkering with trade taxes'' isn't enough to reduce the surplus, said Liang Hong, senior economist at Goldman Sachs Group Inc. in Hong Kong. The ``root cause of China's severe external imbalance is the significantly undervalued currency.''

The National Development and Reform Commission, China's top economic planning agency, forecasts the trade surplus will widen to a record $250 billion to $300 billion this year, up from $177.5 billion in 2006.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net

Last Updated: August 10, 2007 04:22 EDT