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China Yuan Gains on Optimism Stimulus Will Spur Economic Growth

China’s yuan advanced, snapping a two-day decline, on optimism expansion in the world’s second-largest economy is picking up from a three-year low as the government accelerates infrastructure investments.

The currency traded near a five-month high after official data showed new bank loans surged 30 percent in August, the most since March, signaling Premier Wen Jiabao’s steps to spur growth are taking effect. China approved proposals this month to build 2,018 kilometers (1,254 miles) of roads, nine sewage-treatment plants, two waterway upgrades and five port and warehouse projects. Demand for the yuan also rose as banks sold dollars to raise cash ahead of next week’s holidays, according to Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong.

“We started to look for a little bit of renminbi appreciation,” said Cliff Tan, a strategist at Bank of Tokyo-Mitsubishi UFJ in Hong Kong. “We haven’t been so bearish on the Chinese economy. Fiscal spending will start to have an impact on economic indicators within a month or two.”

The yuan gained 0.04 percent to 6.3066 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency, which can trade as much as 1 percent on either side of the central bank’s daily fixing, touched 6.2945 on Sept. 20, the strongest level since April. The PBOC set the reference rate 0.03 percent weaker at 6.3430 per dollar today.

Improving Outlook

China’s 2012 expansion will surpass the 7.5 percent growth target set earlier this year, Xinhua News Agency reported on Sept. 15, citing Fan Jianping, director of the Economic Projection Department at the State Information Center. Growth will stabilize in the second half as the government takes steps including faster approvals of major projects, Fan said.

Twelve-month non-deliverable forwards were little changed at 6.4185 per dollar in Hong Kong, according to data compiled by Bloomberg. That was a 1.7 percent discount to the spot rate in Shanghai.

One-month implied volatility, a measure of exchange-rate swings used to price options, fell 10 basis points, 0.10 percentage point, to 1.25 percent. In Hong Kong’s offshore market, the yuan rose 0.05 percent to 6.3121.

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