Nov. 29 (Bloomberg) -- Traders decreased bets the yuan will be allowed to strengthen after Chinese Premier Wen Jiabao said increasing speculation in the currency will delay an easing of its fixed exchange rate to the U.S. dollar.

``It's not possible to launch changes to the yuan when speculation is so rife,'' Wen said yesterday in Vientiane, Laos, where he is attending an Association of Southeast Asian Nations summit, according to a tape recording of his remarks to reporters. China needs ``a stable macroeconomic environment, a normal market mechanism and a healthy financial system'' before it alters the peg, he said.

U.S. companies including steelmaker Nucor Corp. say China's decade-old fixed exchange-rate policy contributed to the loss of 424,000 manufacturing jobs in President George W. Bush's first term of office. The dollar's 5.3 percent decline against the euro this year has been matched by the yuan, preventing U.S. manufacturers from gaining any competitive advantage.

``They find pressure from other countries to revalue the yuan much stronger when the dollar is in a free fall,'' said Dariusz Kowalczyk, a senior investment strategist in Hong Kong at CFC Securities Ltd. ``That makes it hard to change the policy because they don't want to do it under strong pressure and speculation.''

China has to sell yuan to maintain the 8.3 peg to the dollar, increasing money supply and undermining government efforts to combat inflation and slow the world's fastest-growing major economy. China raised its benchmark U.S. dollar deposit rate on Nov. 17, seeking to discourage purchases of yuan.

Jiang Qi, an official in Beijing with the department of Asian affairs at China's Foreign Ministry, couldn't immediately confirm Wen's remarks. Jiang said she doesn't have authority to release a transcript of the comments.

`Rampant'

The yuan would rise to 7.8770 against the dollar in a year if freely traded, forward contracts showed at 2:13 p.m. in Hong Kong. The implied rate was at 7.8495 late in Asia on Nov. 26. The contracts allow investors to bet on the future value of a currency that is not fully convertible or hedge investments that are denominated in it.

The gap between the fixed exchange rate and the future value of the yuan implied by the forward contracts narrowed to -0.4000, after shrinking to as little as -0.3900, compared with -0.4275 late Asia on Nov. 26. The gap on Nov. 25 widened to match the biggest reached on March 3 at -0.4550.

``China is not likely to relax its currency system at a time when overseas speculation on revaluation is so rampant, because it would only encourage speculation,'' said Yuang Rongsheng, a researcher at the People's Bank of China in Shanghai. ``There are many other ways to relieve pressure of yuan revaluation.''

`Do Something'

China raised its benchmark U.S. dollar deposit rate to deter yuan buying. More Chinese are betting on a rising yuan and selling U.S. dollars, the Wall Street Journal reported on Nov. 18.

China's central bank bought about $20 billion as its citizens sold them in the first six months, the Journal said, citing an internal report from the State Administration of Foreign Exchange.

Wen also suggested the U.S. might do more to prevent the dollar's decline. The dollar last week fell to a record against the euro and its lowest against the Japanese yen in more than four years on concern investors may be reluctant to finance the U.S. current-account deficit.

``Shouldn't the relevant authorities be doing something about this?'' Wen said in remarks first reported by Hong Kong's South China Morning Post.

``His remarks indicated that if the dollar had not weakened so `excessively,' and had been `managed better,' it would have been easier for China to make a move on the yuan and China might have moved already,'' Frank Gong, China economist at JPMorgan Chase & Co. in Hong Kong said in an e-mailed statement.

`Volatile Nature'

Wen also said China has to consider the effect of a more flexible exchange rate on China's economy and society as well as the impact on the region and the world, according to the South China Morning Post.

``The volatile nature of the currency regime is not something which our leadership would like to have,'' Association of Southeast Asian Nations' Secretary-General Ong Keng Yong said in an interview on Nov. 26. ``If there is any desire on their part,'' on introducing a flexible exchange rate, ``it should be done in a way which will not affect our own economic position.''

Forwards are agreements in which assets are traded at fixed prices for later delivery, and yuan forwards are non-deliverable because they are settled in dollars, not local currency.

To contact the reporter of this story: Yumi Kuramitsu in Hong Kong ykuramitsu@bloomberg.net

Last Updated: November 29, 2004 01:16 EST