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Yuan Jumps Most in 2012 After Credit Loosened: Shanghai Mover

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March 22 (Bloomberg) -- The yuan strengthened the most this year after the central bank announced measures to free up funds at banks to spur economic growth.

Asia’s largest economy boosted rural credit by cutting reserve-requirement ratios for an additional 379 branches of Agricultural Bank of China Ltd., the nation’s third-biggest lender by market value, the People’s Bank of China said on its website yesterday. The central bank set the yuan’s reference rate 0.14 percent stronger at 6.3004 per dollar. The currency strengthened 0.17 percent in the last 30 minutes of trading.

“China wants funds to stay in the country,” said Stella Lee, president of Success Futures & Foreign Exchange Ltd. in Hong Kong. “We saw a more aggressive yuan fixing today and the relaxation on rural banks’ capital.”

The yuan rose 0.37 percent to 6.2997 per dollar in Shanghai, according to the China Foreign Exchange Trade System. That was the biggest increase since Dec. 30. The currency is allowed to move as much as 0.5 percent either side of the daily fixing. One-month implied volatility, a measure of exchange-rate swings used to price options, was at 2.50 percent from 2.45 percent yesterday.

“The view for modest appreciation in the yuan still remains,” said Irene Cheung, a currency strategist in Singapore at Australia & New Zealand Banking Group. “In the near term, we are looking at the potential widening of the yuan trading band.”

Fine-Tuning

The monetary authority may choose to lower lending rates, while keeping deposit rates unchanged to ease debt-servicing pressure on exporters, China Securities Journal said in a commentary.

The ruling Communist Party has pledged to fine-tune economic policies as needed as a cooling real-estate market and faltering export demand limit the nation’s expansion. The reserve-ratio level for the nation’s largest lenders stands at 20.5 percent after a cut in February.

A Chinese manufacturing index indicated a worse contraction this month, bolstering the case for Premier Wen Jiabao to add measures to sustain growth even as he prolongs a campaign to cool property prices. The preliminary 48.1 reading in a purchasing managers’ index from HSBC Holdings Plc and Markit Economics today is the lowest since November and compares with a final 49.6 in February. Fifty is the dividing line between contraction and expansion.

Twelve-month non-deliverable forwards strengthened 0.03 percent to 6.3340, a 0.5 percent discount to the onshore spot rate, according to data compiled by Bloomberg. In Hong Kong’s offshore market, the yuan rose 0.13 percent to 6.3168.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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