Yuan Completes 4th Weekly Loss as Pace Slows to Support Growth

By Judy Chen and Kim Kyoungwha

Aug. 15 (Bloomberg) -- The yuan completed a fourth weekly loss, the longest stretch since a peg to the dollar was scrapped in 2005, on speculation China is curbing gains to bolster exports and the economy. Bonds rose.

The currency dropped 0.16 percent for the week, taking the decline since July 18 to 0.77 percent. China will ``maintain the momentum of stable and relatively rapid growth'' in the second half of this year, according to a second-quarter monetary policy report posted on the central bank's Web site today .

``More and more data suggest increasing risks of an economic slowdown,'' said Liu Dongliang, a Shenzhen-based foreign-exchange analyst at China Merchants Bank Co., the country's sixth-largest lender. ``The pace of appreciation in the first half won't return. There will be more two-way fluctuations.''

The yuan fell 0.15 percent to 6.8700 per dollar as of 5:30 p.m. in Shanghai, the biggest loss in more than a week, according to the China Foreign Exchange Trade System.

Liu forecast the yuan won't rise beyond 6.7 per dollar during the second half of this year. The median estimate in a Bloomberg News survey of 25 analysts is for an exchange rate of 6.63 by year-end.

The People's Bank of China has set a weaker reference rate for yuan trading every day in August except one. The rate was fixed at 6.8649, compared with 6.8630 yesterday. The currency is allowed to trade by up to 0.5 percent on either side of the daily rate.

Slowing Growth

China's industrial-production climbed 14.7 percent in July from a year earlier, the slowest pace since February 2007, the statistics bureau said yesterday, compared with 16 percent in June.

The Dollar Index traded on ICE futures in New York, which tracks the U.S. currency against those of six trading partners, gained for an 11th day, extending its advance since July 31 to 5.1 percent.

``The dollar is so strong that onshore traders have trimmed yuan positions,'' said Li Tao, a foreign-exchange trader at Shenzhen Development Bank Co. in the southern city of Shenzhen. ``But the appreciation trend is still there if you look at the yuan's big gains against other currencies in the basket.''

The Chinese currency has climbed 6.8 percent and 2.9 percent versus the euro and the yen since July 18. China has managed the exchange rate against a basket of currencies, including the euro, the yen and British pound since the dollar peg was scrapped in 2005.

Bonds Advance

Government bonds rose after a debt auction today drew more bids than a previous sale.

The finance ministry received bids for 2.15 times the 24 billion yuan ($3.5 billion) of seven-year debt on offer, it said in a statement posted on the Chinabond Web site. The so-called bid-cover ratio was 1.38 at the ministry's last seven-year debt sale in May.

``The result shows demand for bonds is strong and yields will keep going down,'' said Qu Qing, a fixed-income analyst at Shenyin Wanguo Research and Consulting Co. in Shanghai.

The yield on the 4.01 percent note due May 2015 fell 4 basis points to 4.22 percent, the lowest level since July 7, according to the China Interbank Bond Market. The price rose 0.23 per 100 yuan face amount to 98.77. A basis point is 0.01 percentage point.

The finance ministry sold 2.6 billion yuan more debt than planned, according to the statement.

To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.