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China shifts yuan rate

Beijing - China on Monday set its yuan exchange rate marginally higher following the G20 summit, but analysts warned the shift was symbolic and did not presage a major revaluation of the currency.

The move by the central bank came after US President Barack Obama and other leaders used the weekend's G20 meeting in Toronto to intensify pressure on Beijing to let the yuan strengthen.

The People's Bank of China said it set the central parity rate - the centre point of the currency's allowed trading band - at 6.7890 to the dollar, a fraction stronger than Friday's 6.7896.

It was the strongest level policymakers have set since China unpegged the currency in July 2005 and moved to a tightly managed floating exchange rate.

China's central bank pledged about a week ago to let the yuan trade more freely against the dollar but ruled out dramatic moves in the currency or a one-off appreciation.

Obama - facing angry lawmakers who want to slap China with sanctions for what they say is currency manipulation that has given it an unfair trade advantage - said Sunday he expected Beijing to "be serious" about its promise.

Brazilian Finance Minister Guido Mantega also urged China to let the unit strengthen more quickly in order to level the playing field for world trade.

The action was widely seen as a bid to head off an ugly spat at the G20 meeting following months of intense pressure on Beijing to embrace currency reform as part of efforts to enhance a global economic recovery.

The currency appreciated 0.53% against the greenback over the course of last week.

In Monday trade, the yuan was slightly weaker at around 6.7912 to the dollar.

Analysts downplayed the significance of Monday's move, saying it might temporarily appease critics but did not signal a significant revaluation.

The slight increase in the yuan was a deliberate attempt by Beijing to make its currency policy "more acceptable" to critics, said Ken Peng, a Beijing-based economist at Citigroup.

"I don't think they are in a hurry to appreciate the currency," he said.

Obama's comments would have "some influence" on policymakers but any move in the currency would fall short of US lawmakers' demands, said Xiong Zhiyong, an expert on US-China relations at the Foreign Affairs College in Beijing.

US lawmakers have threatened to press ahead with legislation they said would treat "currency manipulation" as an illegal subsidy and enable US authorities to impose tariffs on Chinese goods.

Some experts say the yuan is undervalued against the dollar by up to 40%.

But Chinese leaders attending the G20 summit said Beijing would not bow to international pressure for a stronger yuan, with President Hu Jintao saying trade frictions should be addressed through "dialogue and consultation".

In a further sign policymakers are in no hurry to surrender control of the currency, central bank adviser Xia Bin said China would need to maintain a managed floating exchange rate for the next five to 10 years.

The timing for the yuan to become an international currency is not yet ripe, Xia said in an article published in a pamphlet distributed at a financial forum in Shanghai at the weekend.

China had effectively pegged the yuan at about 6.8 to the dollar for the past two years to prop up exporters during the global financial crisis. Critics say the policy gives Chinese producers an unfair advantage.

 - AFP

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