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BEIJING, March 17 (Reuters) - China's official foreign exchange reserves recorded their biggest monthly drop in at least nine years in January, a source familiar with the situation told Reuters on Tuesday.
The source, who asked not to be identified, declined to say exactly how big the drop was. But he said provisional figures showed it was greater than the $25.9 billion fall last October, a decline that surprised markets by its magnitude.
China's reserves, the largest stockpile in the world, totalled $1.9460 trillion at the end of December, the latest date for which official figures are available.
Data for the first quarter will be released in April.
The source said the decline partly reflected the rise in the dollar due to safe-haven demand and repatriation of funds by banks, companies and investors hit by the financial crisis.
"It eats into the value of non-dollar assets," he said of the dollar's appreciation.
The euro fell to as low as $1.2775 on Jan. 30 from a high of $1.4146 on Dec. 31.
If the January drop is confirmed, it would leave China's reserves hovering around $1.92 trillion, or even lower.
It would be only the third decline since the People's Bank of China started publishing a monthly breakdown of its reserves data in 2000.
In addition to last October's fall, the stockpile shrank $17.11 billion in December 2003, the central bank's official statistics show.
The decline in China's reserves occurred despite combined inflows of $46.6 billion in January from the country's trade surplus and foreign direct investment.
Officials have said last October's drop was also mainly a reflection of a decline in the value of some of China's non-dollar assets, especially those denominated in euros.
If there has, however, been a sustained outflow of capital from China, then the drop in reserves could turn even sharper in February, when the country's trade surplus shrivelled to $4.84 billion.
There ought to be downward pressure on the yuan if the balance of payments swings negative, so the steady exchange rate versus the dollar suggests that the People's Bank of China may actually have been selling FX reserves to support the yuan, said Paul Gruenwald, ANZ chief economist for Asia.
"If you think the policy pronouncement of currency stability is taken seriously by the Chinese authorities, and we do, then this draw down of reserves is perfectly consistent with that objective," he said.
Gruenwald said that such a conclusion would inevitably be somewhat uncertain because of the lack of official data on the composition and valuation of China's foreign exchange reserves.
For all of the fourth quarter, China recorded a $40.4 billion increase in its reserves.
China's reserves rose by $356.2 billion in 2008, $461.9 billion in 2007 and $247.3 billion in 2006. (Reporting by Beijing newsroom; Editing by Ken Wills)