May 26 (Bloomberg) -- China’s yuan posted its biggest decline in almost four months after the central bank lowered the reference rate by the most since December, spurring speculation policy makers will keep appreciation in check to aid exporters.

The People’s Bank of China weakened the daily fixing by 0.07 percent to 6.8285 per dollar, a move that may be a “political gesture” before U.S. Treasury Secretary Timothy Geithner starts a visit to China on June 1, said Huang Yi, a foreign-exchange trader at Guangdong Development Bank Co.

“The reference rate signals that the authorities still don’t want to permit gains in the yuan,” Huang said.

The currency dropped 0.1 percent to 6.8306 as of the 5:30 p.m. close in Shanghai, the biggest loss since Feb. 2, according to the China Foreign Exchange Trade System. It reached 6.8345 today, the weakest in a month.

China has pledged to keep the yuan basically stable to help sustain economic growth, which slumped to a nine-year low of 6.1 percent in the first quarter. It allowed the yuan to slide 0.7 percent in the first week of December when Henry Paulson, Geithner’s predecessor, traveled to China for trade talks.

“After this artificial adjustment in the reference rate, the market still believes the government is favoring a stable currency,” said Huang Huawei, a foreign-exchange trader at Shenzhen Development Bank Co. in Shenzhen. “So, demand for the dollar is not quite strong and the yuan is trading close to the reference rate.”

‘Manipulating’ Currency

Twelve-month non-deliverable yuan forwards fell 0.46 percent to 6.7155 per dollar, the biggest slide since Feb. 17, according to data compiled by Bloomberg. The U.S. Dollar Index, which tracks the greenback against the currencies of six major trading partners, rose for a second day. The gauge declined 3.7 percent last week, the most since the period ended March 20.

Geithner said in January that the Obama administration believes China is “manipulating” its currency to give an unfair advantage to its exporters, an allegation denied by both the Chinese government and the People’s Bank of China.

Government bonds fell on speculation China’s securities regulator will resume new public offerings of shares next month, helping draw funds from fixed-income securities. Some 32 companies are waiting to sell a combined 14.3 billion shares, the Shanghai Securities News newspaper reported yesterday.

“The IPO resumption speculation led to bearish sentiment in the bond market,” said Tang Guohui, a fixed-income analyst at Industrial Securities Co. in Shanghai. “Investors are cutting positions after the previous rally.”

The yield on the 1.77 percent note due December 2013 climbed six basis points to 2.31 percent, and the price of the security dropped 0.25 per 100 yuan face amount to 97.68, according to the China Interbank Bond Market.

To contact the reporters on this story: John Liu in Shanghai at jliu42@bloomberg.net.

Last Updated: May 26, 2009 05:56 EDT