Sept. 30 (Bloomberg) -- China will maintain ``stability'' in the yuan's exchange rate as well as the country's monetary policies, the central bank said today.

While the market will continue to play a ``fundamental'' role in setting the value of the yuan, the exchange rate will be maintained ``basically stable at a reasonable and balanced level,'' the People's Bank of China's 13-member monetary policy committee said in a statement on its Web site today.

The bank said it will keep draining funds from the financial system as it seeks to improve the yuan's managed float. The yuan completed its biggest monthly advance since a link to the dollar ended last year, as traders wagered China will allow faster appreciation to reward Treasury Secretary Henry Paulson for persuading U.S. senators to drop the threat of trade sanctions.

The central bank will ``probably widen the daily trading band as it said it will further improve the managed float of the currency,'' Wang Qing, Hong Kong-based head of economics and strategy for Greater China of Bank of America Corp.

Yuan can only be bought or sold for purposes of foreign trade or to fund approved capital-investment projects, making it easier for the central bank to influence trading. The yuan is allowed to trade by up to 0.3 percent on either side of a daily fixing rate against the dollar.

The central bank said it will seek to ``further curb excessive loan growth'' and ``strengthen the coordination between domestic-currency and foreign-currency policies.'' Today's statement summarizes conclusions reached at the bank's third quarterly monetary policy meeting.

Government Curbs

China has recently shown signs it is responding to repeated calls by finance ministers and central bankers of the U.S. and the other Group of Seven industrial nations to make its currency more flexible. Central bank Governor Zhou Xiaochuan on Sept. 16 called on China's lenders to prepare for changes to the currency so they can better manage risk.

The central bank ``is likely to increase banks' reserve ratio to absorb excess funds from the economy,'' said Wang. The bank twice lending rates twice this year and twice increased the money that lenders had to set aside in reserve to slow credit.

The government halted land sales, suspended provincial investment projects and raised duties to prevent overheating in an economy that expanded 11.3 percent in the second quarter, the fastest rate in more than a decade.

The National Development and Reform Commission, China's top state planning agency, on Aug. 1 ordered provincial governments and local councils to review all investment projects and cancel those that didn't meet industrial, land, credit and environmental regulations. The government of eastern China's Jiangsu province suspended 27 new projects last month for failing to meet the rules, according to a Sept. 1 statement.

China's August monthly investment growth fell to 21.5 percent, the lowest level this year, down from 27.4 percent in July, because of the government's curbs, the country's statistics head Qiu Xiaohua said on Sept. 12.

To contact the reporter on this story: Luo Jun in Shanghai at jluo6@bloomberg.net; Jianguo Jiang in Shanghai at jjiang@bloomberg.net

Last Updated: September 30, 2006 03:02 EDT