YUAN -- ends above 7.9900, 1st time since revaluation
Friday, July 07, 2006 4:48:03 AM (GMT-06:00)
Provided by: Reuters News
(Recasts with analysis, market close)
By Lu Jianxin
SHANGHAI, July 7 (Reuters) - China's yuan <CNY=CFXS> firmed on Friday to close above the psychologically important 7.9900 per dollar level for the first time since its 2005 revaluation, buoyed by expectations that Beijing will allow faster yuan appreciation.
Expectations of faster strengthening were based on the yuan's recent movements, dealers said.
They shrugged off market rumours on Friday that the central bank had called an emergency meeting to sanction a faster yuan appreciation.
"The logic is China should allow the yuan's trading band to be expanded before it could allow the yuan to rise faster," said a Shanghai dealer at a European bank.
"And we believe such a key policy will be decided by a series of meetings, involving a large number of government departments, instead of a single, emergency meeting by only the central bank."
A spokesman at the People's Bank of China, the central bank, declined to comment on Friday.
Still, the yuan closed at 7.9859 against the dollar after trading as high as 7.9850 on Friday, its highest level since Beijing revalued the yuan by 2.1 percent on July 21, 2005, and depegged it from the dollar.
As of Friday's close, stronger than Thursday's 7.9925, the yuan had appreciated 1.55 percent since the July policy change. The yuan's previous intraday peak since it was floated was 7.9915, first reached on Monday.
"There has been strong anticipation that the yuan will appreciate faster as part of efforts to cool the economy," said a dealer at a second European bank.
Traders did not see active central bank dollar-buying in the market on Friday, but said expectations of a faster appreciation were supported by the bank's tolerance of stronger morning mid-points recently.
On Friday, for instance, the People's Bank of China set the mid-point at 7.9936, up from 7.9960 on Thursday. Dealers say the mid-point is important as it viewed as a way for the central bank to signal its intentions to the market.
"There will be volatility around 7.99 in late trade today and next week as the central bank is unlikely to allow the yuan to rise too fast or too strongly," said a dealer at a major Chinese commercial bank.
"A rapid yuan appreciation will invite speculative funds, and that will fan the economy in contrary to government intentions."
Dealers said the yuan was likely to move between 7.9800 to 7.9950 in coming days, though it would retain its steady appreciation in the medium term.
China's latest published economic indicators for May, including a record trade surplus and galloping money supply growth, all point to a continued racing economy. It had already grown 10.3 percent in the first quarter from a year earlier.
A influential Chinese economist, in remarks published on Friday, urged Beijing to widen the yuan's trading band to help tackle the problem of excessive liquidity and cool speculation.
The yuan may rise or fall 0.3 percent from its mid-point each day, but it has moved only a fraction of that range in most trading sessions since the floating rate regime was introduced.
Ba Shusong, vice head of the financial research institute at the cabinet's Development Research Centre, also called for China to take the initiative to reduce world economic imbalances.
((Editing by Lucy Hornby; jianxin.lu@reuters.com; +86 21 6104 1792, fax +86 21 6104 1728))
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