* Economists see yuan rise resuming in 2010, but at slow pace
* Gain of 1.15 pct to 6.75 per dlr expected in next 12 months
* No rise in benchmark interest rates likely before Q3 2010
By Alan Wheatley and Luo Xiao
BEIJING, Sept 29 (Reuters) - The yuan is finally poised to resume its appreciation against the dollar, but it will do so at a snail's pace as Beijing gives priority to financial stability and cementing China's recovery from the economic crisis.
The median forecast of 22 economists polled by Reuters is for the yuan to creep up to 6.82 per dollar by the end of 2009 and to reach 6.75 in a year's time.
The yuan was trading on Tuesday around 6.8275, in line with the end-September forecast of 6.83 that resulted from the previous Reuters poll published on July 7.
The People's Bank of China, the central bank, has kept the currency pinned in narrow ranges around that level since July 2008 to help exporters weather the economic storm.
The outlook for interest rates also points to a long, slow exit from the easy monetary policy China adopted a year ago to cushion the blow of a slump in external demand.
Economists expect the PBOC to keep its benchmark one-year deposit and lending rates on ice until the third quarter of 2010, when the median forecast is for an increase of 27 basis points to 2.52 percent and 5.58 percent, respectively.
Unlike Western central banks, the PBOC changes interest rates in increments that are divisible by nine, a tradition that goes back to the days of the abacus.
"China's exports are unlikely to see much of a recovery in the near future, which will limit any moves by the government to push up the yuan," said Xing Ziqiang, an economist with China International Capital Corp (CICC) in Beijing.
What's more, pressure from foreign governments for China to let the yuan appreciate is not as great as it was before the crisis, Xing said. CICC, the mainland's leading investment bank, expects the yuan to trade at 6.77 per dollar in a year's time.
STRONG FUNDAMENTALS
However, the case for an eventual resumption of the yuan's climb -- it had risen 21 percent versus the dollar in three years before the PBOC slammed on the brakes -- is also compelling.
China's current account surplus, though falling, is still very large. Because the PBOC intervenes to buy dollars flowing into China to hold down the yuan, its official currency reserves soared $185.6 billion in the first half of this year alone.
And as the economy is recovering briskly, the risk is that capital inflows will intensify as investors bet that sound fundamentals will translate into a firmer exchange rate, said Rob Subbaraman, chief Asian economist at Nomura in Hong Kong.
"With the improving global economic and financial backdrop, and China growing very strongly, putting it all together there's room for the authorities to ease off the intervention," he said.
"The added reason is the need to rebalance the economy, and an important way of helping to do that is through currency appreciation," Subbaraman added. A stronger yuan would steer investment capital away from export industries and towards sectors that rely on domestic demand -- a prime government goal.
Subbaraman said he was very comfortable with Nomura's forecast of the yuan at 6.50 per dollar in 12 months' time.
WAITING FOR WASHINGTON
Even economists who believe Beijing will keep a lid on the yuan until the export sector has stabilised accept that the currency cannot remain pegged to the dollar indefinitely.
"Signs of China's economic recovery are multiplying, so anticipation of yuan appreciation is there," said E Yongjian with Bank of Communications in Shanghai. "International funds are all betting on a rising yuan, which could further push up its value in the longer term."
Zhao Qingming, an economist with China Construction Bank in Beijing, said policy might change once inflation risks start to grow from the second quarter of 2010.
Thus, Zhao sees the yuan ending this year unchanged at 6.83 per dollar before advancing to 6.75 at the end of March and 6.65 in a year's time.
Fear of attracting capital inflows that would make it tough to restrain the yuan is a major reason -- alongside the fact that prices are falling and Beijing sees the economy as still fragile -- why economists expect no swift change in interest rates.
"The U.S. is not going to increase interest rates any time soon. So if China raises rates well before the U.S., that will attract much more speculative hot money into China," said Xing at CICC. (Additional reporting by Zhou Xin and Aileen Wang; Editing by Jan Dahinten)