June 29 (Bloomberg) -- People’s Bank of China Governor Zhou Xiaochuan said the nation won’t change its currency reserve policy suddenly, helping the dollar to snap a two-day decline.

“Our foreign-exchange reserve policy is always quite stable,” Zhou told reporters at a central bankers’ meeting yesterday in Basel, Switzerland. “There are not any sudden changes.”

The dollar slumped on June 26 after the central bank renewed its call for a new global currency, fueling speculation it will diversify its reserves, the world’s largest at more than $1.95 trillion. U.S. President Barack Obama needs the support of China as his government tries to spend its way out of a recession.

“I don’t see any practical alternative as a key reserve currency when I look around,” said David Woo, London-based global head of foreign-exchange strategy at Barclays Capital. China’s proposal to expand the use of special drawing rights, the unit of account used by the International Monetary Fund, isn’t a “practical solution” because they aren’t liquid, he said.

The Dollar Index that measures the currency’s performance against six trading partners rose 0.2 percent to 80.07 at 9:41 a.m. in Hong Kong. It dropped as much as 1 percent on June 26, before ending the day lower 0.7 percent.

‘No interest’

At the end of 2008, the dollar accounted for 64 percent of global reserves, down from 73 percent in 2001, according to the IMF. The euro’s share of the $4.21 trillion of reserves whose composition was reported to the IMF was 26.5 percent at the end of December, up from 17.9 percent. Total reserves stood at $6.71 trillion.

Chinese investors, the biggest foreign owners of Treasuries, cut holdings by $4.4 billion in April to $763.5 billion after Premier Wen Jiabao expressed concern that the value of dollar assets was declining. That reduction came a month after China boosted its holdings by $23.7 billion to a record.

“China has no interest in triggering a dollar crisis or a U.S. bond crisis,” Calyon, the investment-banking arm of Credit Agricole SA, wrote in a research note today.

Expanding Economy

China and Brazil in May began studying a proposal to move away from the dollar to settle trade and use yuan and reais instead.

“We are discussing it,” Zhou said. The aim is to use local currencies “for some trade settlement and project investment. That’s the major thing, it’s not really to use currency swaps.”

The Chinese economy may have expanded more in the second quarter than in the first, Zhou said. Gross domestic product rose 6.1 percent from a year earlier, the slowest pace in almost a decade.

Exports have slumped in the face of recessions in the U.S., Europe and most of China’s trading partners. Still, China’s economy will grow 8 percent this year and achieve more than 9 percent annual expansion in 2011, Cheng Siwei, former vice chairman of the standing committee of the National People’s Congress, said yesterday.

To contact the reporter on this story: Stephanie Phang in Basel at sphang@bloomberg.net

Last Updated: June 28, 2009 22:06 EDT