Strengthening yuan touches 17-year high against greenback

China's yuan strengthened the most in a week, touching a 17-year high, as a Standard & Poor's downgrade of the US debt rating fuelled speculation China will rein in dollar purchases used to limit appreciation. The People's Bank of China raised its reference rate for the currency by the most since November after S&P cut America's top credit rating by one level to AA+ on August 5. The US should avoid letting its currency weaken or taking fresh monetary steps that may worsen the dollar's depreciation, Xinhua News Agency said yesterday in a commentary. China is the biggest foreign owner of Treasuries, holding $1.16 trillion of the securities as of May, US Treasury Department data show.The yuan rose 0.07 per cent to close at 6.4360 per dollar as of 4:30pm in Shanghai, paring earlier gain of as much as 0.24 per cent, according to the China Foreign Exchange Trade System. The currency touched 6.4250, the strongest level since the country unified official and market exchange rates at the end of 1993."Investors may have chosen to lock-in gains as they are still wary of taking risks after the US credit downgrade," said Carlos Cheung, a Hong Kong-based foreign-exchange dealer at Bank of Communications Ltd. "From the fixing, you can see the government doesn't hesitate to appreciate the yuan."The People's Bank of China set its daily fixing 0.23 per cent higher at a record 6.4305 per dollar. The currency is allowed to trade up to 0.5 per cent on either side of the official rate. In Hong Kong's offshore market, the yuan appreciated 0.14 per cent to 6.4265, based on data compiled by Bloomberg. Twelve- month non-deliverable forwards appreciated 0.16 per cent to 6.3782, a 0.9 per cent premium to the onshore spot rate.Premier Wen Jiabao is promoting the use of yuan in international trade and finance to reduce the country's reliance on the dollar. China's $3.2 trillion of foreign-exchange reserves are the world's largest.China must stop buying dollars and allow the exchange rate to be decided by market forces "as soon as possible," Yu Yongding, a former central bank adviser, wrote in a commentary in the Financial Times on Friday. From / Gulf News