(Adds more details, background)
* FX regulator says expected yuan rise to attract capital
* Vows it will combat hot money inflows
BEIJING, Oct 12 (Reuters) - China on Tuesday urged market players to get used to two-way exchange rate movements, saying that its policy of currency reform did not necessarily equate to yuan appreciation.
Nevertheless, the country's foreign exchange regulator said that investors were still firm in their belief that the yuan would rise and that this would help drive capital to China over the rest of the year.
Chinese officials have repeatedly tried to talk down expectations of yuan appreciation since freeing the currency from a 23-month peg to the dollar on June 19. But with the yuan up nearly two percent against the dollar since late August, concern is mounting that China could soon face a tide of hot money.
"Currency reform does not equate to yuan appreciation. The emphasis is more on the improvement of the currency formation mechanism," the State Administration of Foreign Exchange said in a report about China's first-half balance of payments.
Along with expectations of a stronger yuan, higher interest rates compared with the United States, export competitiveness and foreign direct investment would all attract capital to China, SAFE said in the report published on its website (www.safe.gov.cn).
Given that context, it said that China would continue to curb hot money inflows to safeguard its financial stability and economic recovery.
It repeated China's assertions of confidence that Europe would overcome its sovereign debt problems, but warned that global efforts to cut fiscal deficits would create economic uncertainties in the short to medium term.
It said that inflationary pressure in emerging markets would be higher than that in developed countries.
SAFE also announced a revision to its current and capital account data for the second quarter. China's current account surplus was $72.9 billion yuan, down from the previously stated figure of $81.1 billion yuan. The capital and financial account surplus revised to $25.8 billion, up from $11.5 billion.
(Reporting by Langi Chiang and Simon Rabinovitch; Editing by Ken Wills)