Jan. 11 (Bloomberg) -- The yuan rose past the Hong Kong dollar for the first time in 13 years, underlining China's economic ascent and fueling debate over whether to scrap the city's exchange-rate link to the U.S. dollar.

China's yuan climbed to 1.0004 per Hong Kong dollar and advanced 0.16 percent to 7.7949 to the U.S. currency at 5:30 p.m. in Shanghai, the biggest gain since Nov. 29, according to data compiled by Bloomberg.

Gains in the yuan may add to pressure on Hong Kong to adjust a 23-year-old currency peg to the U.S. dollar to reflect growing economic ties with China. The Hong Kong Monetary Authority says any change would rock investor confidence and has spent the past three years stopping currency appreciation.

``Breaking 7.80 is psychologically impressive, but it's just a passing point,'' said C. H. Kwan, a Tokyo-based senior fellow at Nomura Institute of Capital Markets Research, a unit of Japan's biggest brokerage. ``The Hong Kong dollar is likely to remain pegged to the U.S. dollar at a central rate of 7.80 in coming years.''

As the HKMA held the Hong Kong dollar steady, the yuan, or renminbi, has advanced 6.2 percent since a decade-long U.S. dollar link of 8.3 was scrapped in July 2005. Hong Kong's de- facto central bank prevents its currency from trading more than 5 cents either side of 7.80 per U.S. dollar.

`No Intention'

HKMA Chief Joseph Yam, who wasn't immediately available for comment today, said on Aug. 25 that the yuan reaching 7.80 was a ``psychological level'' that wouldn't play a role in setting Hong Kong's currency policy.

``The Hong Kong dollar market has remained stable after the renminbi exchange rate breached the 7.80 level,'' an HKMA spokesman, who asked not to be identified, said today. ``The government has no intention to change the linked exchange rate system, which continues to serve Hong Kong well.''

The city introduced the peg on Oct. 17, 1983, after the currency slumped 48 percent against the dollar in the nine previous years as China asserted its claim to the former British colony. Since then, the link has weathered the 1987 Black Monday stock-market crash, the Tiananmen Square massacre of 1989 and the city's handover to Chinese sovereignty in 1997.

The central bank fought off an attack on the peg after the Asian financial crisis in 1998, spending $15 billion buying the city's stocks to deter speculators.

Of 10 strategists surveyed by Bloomberg News, only Westpac Banking Corp., Australia's fourth-biggest bank, predicts the Hong Kong dollar link will end by 2008, forecasting a rate of HK$7.20 by 2010. The currency's spot rate today was HK$7.7976, according to Bloomberg data.

`Clock is Ticking'

``The clock is ticking,'' said Sean Callow, a senior currency strategist at Westpac. ``If you ask any Asian policy makers, they're in agreement that the U.S. dollar is heading lower in the long term. This makes the Hong Kong dollar look unnecessarily cheap.''

China's trade surplus swelled 74 percent to a record $177.5 billion last year as exports surged, the government said today. U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke, visiting Beijing last month, urged China to relax controls on its currency to ease the imbalance.

``This reinforces the story that China's still got huge surpluses and needs to deal with them,'' said Thio Chin Loo, senior currency strategist at BNP Paribas SA in Singapore. ``The pressure for more gains isn't going to go away.''

China's stock market surpassed $1 trillion in value after major benchmarks more than doubled last year, making it the world's 10th-largest equity market, Bloomberg data show. Hong Kong's market value is $2.1 trillion.

Different Economies

China will let companies sell yuan-denominated bonds in Hong Kong, the Cabinet and central bank said late yesterday, in a move aimed at increasing the use of the currency. Business from China has made Hong Kong the world's second-busiest container port, as economic ties between the two grow closer.

``Any change to the Hong Kong peg is still a long way off,'' said Shahab Jalinoos, head of Asian currency strategy at ABN Amro Bank NV in Singapore. ``Whilst getting closer, China's and Hong Kong's economy are still very different.''

Ben Simpfendorfer, a currency strategist at Royal Bank of Scotland Plc, said last week that Hong Kong may peg to a basket of currencies within five years because ``an asset bubble caused by inflation is a threat.'' It may eventually link to the yuan once China's government allows greater convertibility, he said.

Swelling Coffers

Gains in the yuan have made Hong Kong's exports cheaper relative to Chinese products and boosted the spending power of Chinese tourists. Visitors from China accounted for more than half the city's 22.8 million visitors in the first 11 months of last year.

``Mainland tourists are swelling the coffers of Hong Kong retailers,'' said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. The yuan's gains are ``unambiguously positive'' for the city.

The city's economy grew at a 6.8 percent pace in the third quarter, four times faster than the U.S. rate of 1.6 percent, though slower than China's 10.4 percent. Consumer prices rose 2.2 percent in November from a year earlier as a stronger yuan made imports from China more expensive.

The monetary authority has to set its benchmark rate in step with the Federal Reserve to maintain the peg, rather than seeking to cap prices. Lenders including HSBC Holdings Plc in November cut interest rates to their best customers, which may further stoke spending by consumers and companies.

The rate banks charge each other to borrow the Hong Kong dollar for one year is 1.24 percentage points lower than that for the U.S. dollar. The gap was 1.31 percentage points on Jan. 2, the widest in 19 months.

John Greenwood, a member of a board that advises the HKMA on currency policy and the chief international economist at Invesco Asset Management Ltd. in London, said in November there had been no discussion of changing the peg when the group considered the impact of the rising yuan. He said the convergence is ``nothing more than an arithmetic coincidence.''

To contact the reporter on this story: Jake Lee in Hong Kong at jlee127@bloomberg.net.

Last Updated: January 11, 2007 05:13 EST