Yuan Set for 4th Weekly Loss as Pace Slows to Support Growth

By Judy Chen and Kim Kyoungwha

Aug. 15 (Bloomberg) -- The yuan headed for 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 0.12 percent for the week, taking the decline since July 18 to 0.73 percent. A government report yesterday showed China's industrial-production growth cooled in July to the slowest pace since February 2007 and the statistics bureau said last month that the economy expanded by the least since 2005 in the second quarter.

``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 0.10 percent to 6.8669 per dollar as of 12:09 p.m. in Shanghai, the biggest loss in more than a week, according to the China Foreign Exchange Trade System. The yuan's 6.6 percent gain in the first half was more than double the advance for the same period last year.

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 finance firms is for an exchange rate of 6.63 by year-end.

Industrial production climbed 14.7 percent in July from a year earlier, the statistics bureau said, after gaining 16 percent in June.

Bonds Rise

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.

Government bonds rose after the finance ministry auctioned at least 24 billion yuan ($3.5 billion) of seven-year debt on offer at lower yields than forecast in a Bloomberg survey. The notes were sold at a yield of 4.23 percent compared with the 4.27 percent median estimate.

``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 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.

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