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Yuan Gains on Speculation China More Tolerant of Appreciation

March 1 (Bloomberg) -- China’s yuan rose toward a 17-year high on speculation policy makers will permit more gains to help contain inflation, which accelerated in all but one of the seven months through January.

The currency strengthened for a third day after the Financial News reported Liu Mingkang, chairman of the China Banking Regulatory Commission, as saying the yuan had entered a period of “only appreciation.” Exports exceeded imports by $183 billion in 2010 and trade partners including the U.S., France and India say an undervalued yuan gives Chinese exporters an unfair advantage.

“There is big appreciation pressure on the yuan as the trade surplus remains at such a high level,” said Liu Dongliang, a Shenzhen-based senior analyst at China Merchants Bank Co., the country’s sixth-largest lender by market value. The Chinese currency will rise 5 percent during 2011, he predicted.

The yuan advanced 0.02 percent to 6.5703 per dollar as of 5:19 p.m. in Shanghai, according to the China Foreign Exchange Trade System. It touched 6.5654 on Feb. 21, the strongest level since China unified official and market exchange rates at the end of 1993.

The central bank set the reference rate for yuan trading 0.07 percent stronger at 6.5706 per dollar, near the highest level since a dollar peg was scrapped in July 2005. Premier Wen Jiabao said Feb. 27 a stronger currency will benefit the nation’s economy by cooling inflation.

Forwards Rise

Twelve-month non-deliverable forwards rose 0.11 percent to 6.4055 per dollar, reflecting bets the currency will strengthen 2.6 percent in one year’s time, according to data compiled by Bloomberg.

China’s manufacturing purchasing managers’ index fell to 52.2 in February from 52.9 in January, the National Bureau of Statistics and the Federation of Logistics and Purchasing said in a statement today. A reading above 50 indicates an expansion.

“The PMI figure shows economic vitality eased after all the tightening measures came out in the past four months, but there is no sign that the appreciation pace will slow down,” said China Merchants’ Liu.

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

To contact the editor responsible for this story: James Regan at Jregan19@bloomberg.net

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