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Yuan Set for First Quarterly Gain of 2012 on China Stimulus Bets

Sept. 28 (Bloomberg) -- The yuan is headed for its first quarterly advance this year on speculation China will use fiscal and monetary policies to arrest a seven-quarter slowdown in the world’s second-largest economy.

The People’s Bank of China strengthened the reference rate by 0.08 percent today, the most since Aug. 22, fixing it at 6.3410 per dollar. The central bank injected a record amount of funds into the financial system this week to ease a cash squeeze in the run up to a weeklong holiday that starts Oct. 1.

“The economy is not doing so well and the government will implement new stimulus, although the scale won’t be as large as before due to concerns about some bubbles in the property market,” said Bruce Yam, a foreign-exchange strategist at Sun Hung Kai Financial Ltd. in Hong Kong. “The yuan will find it difficult to strengthen beyond 6.25 in the final quarter.”

The yuan gained 0.08 percent to 6.2972 per dollar as of 10:22 a.m. 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. It gained 0.9 percent this quarter.

‘Big Restraint’

A People’s Bank of China academic adviser said the risk of a rebound in property prices may help explain why the government is holding back from easing monetary policy to counter a deepening economic slowdown.

That concern is “a big restraint,” Chen Yulu, president of Beijing’s Renmin University, said yesterday in the city. Further cuts in reserve requirements or interest rates depend on how much external demand worsens, Chen said.

Twelve-month non-deliverable forwards gained 0.05 percent to 6.4150 per dollar in Hong Kong, according to data compiled by Bloomberg. That was a 1.8 percent discount to the spot rate in Shanghai.

One-month implied volatility, a measure of exchange-rate swings used to price options, fell five basis points, 0.05 percentage point, to 1.15 percent. In Hong Kong’s offshore market, the yuan rose 0.10 percent to 6.3067.

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

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

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