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The yuan advanced by the most against the dollar in seven weeks yesterday on speculation the central bank wants to keep the local currency strong as credit markets slump and investors shun emerging markets.
Bonds climbed, Bloomberg News reported.
China hoped the United States would solve its subprime credit crisis and would "stabilize" the dollar, Foreign Ministry spokeswoman Jiang Yu said. The People's Bank of China yesterday fixed the reference rate for yuan trading stronger than 6.83 a dollar for a second day, having set weaker levels for the previous seven weeks.
"The reference rate shows the central bank wants to keep the currency stable as credit losses may spread," said Huang Yi, a foreign-exchange trader at Guangdong Development Bank Co in Guangzhou.
The yuan climbed 0.18 percent to 6.8370 a dollar as of 5:30pm yesterday in Shanghai, from 6.8490 on Tuesday, according to the China Foreign Exchange Trade System.
The currency has gained 0.8 percent versus the dollar in the past three months, the best performer among Asia's 10 most-traded currencies outside Japan.
Bonds rise
The yuan is allowed to trade by up to 0.5 percent against the dollar either side of the so-called central parity rate, which was set at 6.8290 yesterday.
The rate was set after the US government agreed to lend American International Group Inc US$85 billion, averting the biggest financial collapse in history.
Global stocks tumbled in the past two days as mounting credit losses forced Lehman Brothers Holdings Inc to file the largest bankruptcy on record.
China's government bonds rose after a state-owned bank sold five-year debt at a yield lower than analysts and traders predicted, benefiting from higher demand as financial turmoil prompted investors to favor safer assets.
The debt sale followed a 19 basis points decline on Tuesday in the yield of five-year government debt, the biggest drop this year, according to an index compiled by the nation's largest debt clearing house. Yields on seven and 10-year bonds also slid the most this year, the measure showed. A basis point is 0.01 percentage point.
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