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The yuan fell against the United States dollar yesterday, ending eight days of gains, on speculation China will prevent the currency from strengthening to help exporters weather a global economic slowdown.
The currency declined from a two-week high after a statistics bureau report showed industrial production grew at the slowest pace in almost a decade last month as exports collapsed. China will keep the yuan at a ''reasonable and balanced level,'' the State Council said on Saturday.
''The data deepens investors' worries about the outlook for the economy,'' said Huang Yi, a foreign-exchange trader at Guangdong Development Bank Co in Guangzhou. ''The market speculates the central bank aims to keep the yuan at around 6.85 to aid exporters.''
The yuan dropped 0.11 percent to 6.85 per US dollar as of 5:30pm in Shanghai, from 6.8427 late last week, according to the China Foreign Exchange Trade System. The currency, which gained 0.6 percent last week, has climbed 21 percent since its peg to the US dollar was scrapped in July 2005. The People's Bank of China fixed the reference rate for yuan trading at 6.8442 per US dollar yesterday, little changed from 6.8451 last Friday. It set the rate at the lowest level in more than three months on December 1, prompting the yuan to slump the most since the end of the peg on concern China will weaken the currency to boost exports.
''The turmoil in the first week of the month gave the central bank a lesson,'' said Li Tao, a foreign-exchange trader at Shenzhen Development Bank Co in Shenzhen. ''It's now weakening expectations of depreciation to stabilize the market and stem outflows of foreign capital.''
Non-deliverable 12-month forwards, which slid 3.3 percent on the first day of this month, dipped 0.3 percent yesterday, the most in more than a week. The contracts show traders are betting the yuan will slide 3.4 percent to 7.09 per US dollar in a year, after pricing in a 5.5-percent decline on December 1.
Growth in industrial production slowed to 5.4 percent last month, from 8.2 percent in October, the statistics bureau said. None of 14 economists surveyed by Bloomberg News predicted such a small increase.
Government bonds gained on speculation the central bank will lower interest rates to spur spending at home. The central bank cut its benchmark lending rate by the most in 11 years last month as manufacturing contracted and export orders plunged.
The industrial output data ''shows the economy is deteriorating and may increase pressure on the central bank to reduce interest rates again, so this is good for bonds,'' said Nie Shuguang, fixed-income trader at the Industrial Bank in Shanghai.
The yield on the 2.71 percent note due November 2015 fell 6 basis points to 2.39 percent, according to the China Interbank Bond Market.
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