The yuan rose to the highest since the end of a fixed exchange rate in 2005 after the dollar fell.

The yuan also climbed after an advance in currencies it uses to manage the exchange rate on Friday, including the euro and the yen.

"The yuan is still heading only in one direction, the debate remains only about the pace," said Sean Callow, a strategist with Westpac Banking Corp in Sydney. "A current account surplus, a rapidly rising share of world trade and the largest stock of reserves yet seen means we are some way away from claiming stability."

The yuan rose 0.20 percent to 6.9753 as of 5:30pm in Shanghai from 6.9890 late last week, the biggest gain since April 29, according to the China Foreign Exchange Trade System, Bloomberg News reported.

The currency strengthened 18.7 percent since the end of a dollar peg in July 2005.

"The dollar's weakness on Friday is driving the yuan up today," said Liu Hantao, a foreign-exchange trader at China Construction Bank Corp in Beijing. "China won't change the yuan's appreciation trend," even though there are increasing voices against faster yuan gains, said Liu.

Liu said the yuan will rise to 6.7 by the end of this year.

The US Dollar Index traded on ICE futures in New York, which tracks the currency against those of six trading partners, fell 0.3 percent to 72.877 yesterday, after posting the biggest loss in a month on Friday.

Hampering

China's foreign-exchange reserves grew to a record US$1.68 trillion at the end of March as overseas investors sought to profit from gains in the yuan, hampering government efforts to damp inflation that rose 8.5 percent in April from a year ago.

The yuan may come under pressure to gain "excessively" due to rising capital inflows, Shanghai Securities News reported yesterday, quoting former central bank deputy governor Wu Xiaoling.

"The 30-year bond auction triggered a climb in yields after previous rapid gains in debt this year," said Gao Zhanjun, a fixed-income analyst with Citic Securities Co in Beijing.

The nation's inflation rate rose to 8.5 percent in April, near a more than 11-year high in February.

(Shanghai Daily May 20, 2008)