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Yuan Climbs on Speculation China’s Interest Rates to Rise Again

Dec. 2 (Bloomberg) -- China’s yuan advanced for a second day on speculation policy makers will add to October’s interest-rate increase to tame inflation after data showed manufacturing gathered pace for a fourth month in November.

The People’s Bank of China set the reference rate for yuan trading at 6.6691 per dollar today, 0.14 percent stronger than yesterday’s level. The euro was little changed against a basket of currencies including the yen and Swiss franc before the European Central Bank announces its decision on interest rates and any steps to stem the region’s fiscal crisis later today.

“The yuan is on an appreciation path given the macro environment and need for further tightening,” said Cliff Tan, head of emerging-markets currency research at Societe Generale SA in Hong Kong. “Looking forward, China may play a role in helping the European debt crisis. It’s a case of who’s got the money, rather than who can print the money, and that highlights the importance of the yuan.”

The Chinese currency rose 0.03 percent to 6.6613 per dollar as of 5:34 p.m. in Shanghai, according to the China Foreign Exchange Trade System. It last week declined 0.42 percent, the most since 2008, as Europe’s debt crisis and an exchange of artillery fire between North and South Korea bolstered demand for dollars.

Twelve-month non-deliverable forwards gained 0.05 percent today to 6.5125 against the greenback, reflecting bets the yuan will strengthen 2.2 percent in a year, according to data compiled by Bloomberg.

Rate Outlook

China’s Purchasing Managers’ Index rose to 55.2 from 54.7 in October, the nation’s logistics federation reported yesterday. The central bank’s benchmark one-year lending and deposit rates were boosted by a quarter of a percentage point on Oct. 19, the first increases since 2007, and Standard Chartered Plc and Credit Agricole SA predict four more rises by the end of June.

The European Central Bank’s Governing Council will meet today amid speculation it will delay its exit from emergency-liquidity measures and may even enhance them. Ireland in the past week joined Greece in accepting a European Union-led bailout, while the cost of insuring Portuguese, Spanish and Italian bonds climbed to records.

To contact Bloomberg News staff for this story: Sonja Cheung in Hong Kong at scheung58@bloomberg.net.

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.

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