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Yuan at 6-mth closing high on appreciation jitters

Published 04/09/2010, 07:43 AM
Updated 04/09/2010, 07:48 AM

* Jitters over possible yuan revaluation over weekend

* Big state banks that trade for PBOC seen trading normally

* Traders at state banks have no knowledge of imminent move

* NDFs rebound to imply less future yuan appreciation (Adds NDF movements, background)

By Lu Jianxin and Edmund Klamann

SHANGHAI, April 9 (Reuters) - The yuan rose to its highest close in six months against the dollar for a second straight day on Friday as traders fretted over a possible yuan revaluation over the weekend, but state banks that trade on behalf of the central bank appeared to have no knowledge of any imminent move.

Several dollar/yuan offshore forwards, however, bounced after dipping to fresh 20-month lows, as the market digested a New York Times report on Thursday that China was close to announcing a currency policy shift that would involve a small but immediate revaluation of the yuan.

"There was some panic in the (spot) market late in the session that the central bank may revalue the yuan late today or over the weekend," said a dealer at a Chinese commercial bank in Shenzhen. "No one was certain, but just panic."

As the yuan did not move significantly, there was no clear evidence that the People's Bank of China was intervening in trading to influence the yuan's value, traders said.

The four largest state-owned banks which normally trade for the central bank did not show signs of any unusual activity, they added.

"The Big Four state-owned banks traded quite normally, and some were resisting quotes that pointed to strong yuan appreciation," said a senior dealer at a major European bank in Shanghai.

"That appears to be a sign that the Big Four had not been instructed regarding any yuan appreciation."

MARKET PUZZLED

A trader at one of the Big Four banks said he was as puzzled as the rest of the market.

"If there is going to be a yuan revaluation over the weekend, only the top officials know," he said.

The Big four are Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China.

Spot yuan finished at 6.8239 against the dollar, its highest close since Oct. 12, 2009. In late trade, the yuan hit a six-month intraday peak of 6.8231.

On Thursday, the yuan closed at 6.8245, also the highest close since October 2009, buoyed by the New York Times report.

Despite lingering uncertainty, the market's expectations of yuan appreciation have strengthened greatly over the past week or so, with signs that both China and the United States have been seeking a solution to their currency dispute, traders said.

U.S. Treasury Secretary Timothy Geithner paid a surprise lightning visit to China on Thursday and met Chinese Vice Premier Wang Qishan in Beijing. The market widely believes that the two discussed currencies.

A short U.S. Treasury statement after the meeting, which made no mention of currencies, said they exchanged views on U.S.-China economic relations and the global economy, as well as other issues related to a U.S.-China Strategic and Economic Dialogue meeting due to be held in Beijing in late May.

Offshore, three-month non-deliverable forwards (NDFs) rose to 6.7490 in late trade from Thursday's close of 6.7450, implying yuan appreciation of 1.14 percent in three months, down from 1.20 percent on Thursday.

Benchmark one-year NDFs rose to 6.6190 from Thursday's close of 6.6160, with implied 12-month yuan appreciation falling to 3.13 percent from 3.17 percent. ($1=6.82 yuan)

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