* China c.bank: world economy is recovering, despite euro
* Economic trends favourable for controlling inflation
* Yuan-settled trade grew dramatically in Q2
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BEIJING, Aug 5 (Reuters) - China's economy is on course for stable growth, but the pressure for wage increases will intensify and authorities must manage inflationary expectations, the central bank said on Thursday.
In its monetary policy report for the second quarter, the People's Bank of China also said that the economy would see considerable net foreign currency inflows, but repeated that there was no basis for big swings in the yuan's exchange rate.
The central bank offered guarded optimism about the global economy, saying that it was on the road to recovery, despite challenges posed by the euro crisis and government deficits.
"The national (Chinese) economy is likely to gradually move towards steady and sustainable growth, upon the foundation of a rapid recovery," it said.
Countries around the world will be prudent in implementing exit strategies and global monetary conditions are likely to remain loose, while China will also maintain its "appropriately loose" monetary policy, the central bank said.
China's economy grew 10.3 percent year on year in the second quarter, and analysts expect the data for July, due next week, to point to a clear slowdown in the second half. Inflation is also seen picking up, though only temporarily. [ID:nTOE673079]
The central bank said inflation would be controllable in the second half, with economic trends pointing to a lessening of price pressures.
Nevertheless, it added that the government still had its work cut out in managing inflationary expectations and that the pressure for wage increases was clearly on the rise.
"The current inflationary expectations and upward price risks should not be neglected," it said.
YUAN GOING GLOBAL
Turning to the Chinese currency, the central bank stuck word-for-word to the long-established official description of exchange rate policy, saying that the yuan would be kept basically stable at a reasonable, balanced level.
The yuan was unshackled from a nearly two-year peg to the dollar in June and has risen just 0.8 percent since then.
But in a sign of its larger ambitions for its currency, the People's Bank gave a detailed update about how the yuan had been faring as a medium for trade settlement.
Beijing launched a trial last July to allow firms doing business between China and a select few trading partners, notably Hong Kong, to invoice transactions in yuan.
The total turnover of yuan-settled trade was 48.7 billion yuan ($7.2 billion) in the second quarter, an increase of 165 percent from the first quarter, the central bank said.
Since the launch of the scheme in July 2009, total settlement reached 70.6 billion yuan, with 87 percent of the trade with Hong Kong and Singapore.
On June 22, China expanded the trade-settlement programe to all countries around the world, and the central bank said it would continue to push forward the scheme. ($1=6.772 Yuan) (Reporting by Zhou Xin, Simon Rabinovitch and Chris Buckley; Editing by Ron Askew)