BEIJING, Aug. 2 -- China's yuan closed at a post-revaluation high against the dollar for a third straight session Monday, with many dealers seeing increasing leeway to allow the currency to gain but some economists saying it was too early to tell, Reuters reported.

    

A bank teller counts dollars at a branch of Bank of China in Shanghai, August 1, 2005. [newsphoto]

The central bank remained absent throughout, traders said, as the currency closed at 8.1046 to the dollar, up from Friday's rate of 8.1056 and showing a 0.07 percent appreciation since July 21, when Beijing revalued the yuan by 2.1 percent to 8.11 per dollar.

    Dealers say the People's Bank of China (PBOC) has been keen to give the impression that market forces are at work, by allowing creeping gains against the greenback. But no official strategy for dealing with the currency's daily fluctuations has appeared.

    The daily ranges remain narrow, not because the central bank is directly controlling the market but because traders, operating in uncharted waters, fear buying the yuan at high prices that might prompt official selling, driving the thinly traded currency lower again.

    "This is a regime shift. You're going into the unknown. This is not only true for the traders but also the PBOC," said JPMorgan currency analyst Claudio Piron.

    "The PBOC is still feeling its way around, trying to gauge the market. Given that we conceptually have a crawling peg, although that is currently non-existent, it's probably not trying to make the yuan wholeheartedly fixed."

    Dealers, still trying to discern the many undisclosed details of the central bank's policy, took the currency's steady though marginal strengthening as evidence that the authorities were happy to allow progressively wider trading.

    Several said Beijing could stay on the sidelines as long as the yuan traded between 8.1016 and 8.1158 against the greenback -- 30 ticks above and below the range it has so far staked out.

    "When the yuan hit the 8.1050 level, we saw numerous dollar buying orders, indicating that room for the yuan to rise much further would be limited right now," said a floor trader at a Chinese bank.

    "The yuan should see some correction soon."

    Muddled markets

    Still, Beijing seemed to be quietly giving the yuan a longer leash, letting it move further from 8.11 per dollar, dealers said.

    In letting the yuan trade higher and wider, the central bank appears to be taking deliberate baby steps towards the greater flexibility expected for its new system.

    But the yuan has firmed only 0.07 percent since the revaluation. And while the daily range is much wider than the two or three ticks seen before the revaluation, it is still wafer thin by the standards of other currencies.

    The central bank had been suspected of posting large quotes around 8.1050 against the dollar on Friday, but dealers said such quotes were not in evidence on Monday -- though plenty from market participants did appear.

    Central bank chief Zhou Xiaochuan said after the market closed on Friday that the yuan had begun normal floating, reflecting market supply and demand and changes in the exchange rates of major currencies in international markets.

¡¡ Despite such routine official talk of market forces, dealers do not see supply and demand enjoying free rein.

    "The yuan has moved around 80 points up or down since its revaluation, and we believe it could move in a range of more than 100 points in coming weeks -- not days," said a dealer at a foreign bank.

    Announcing the revaluation, the central bank said it was switching to a managed float based on market supply and demand, with reference to a basket of currencies.

    The central bank has also said that the currency could move up or down as much as 0.3 percent per day against the dollar. But in the whole period since the revaluation the yuan has moved in a range only a third as big.

(Source: Reuters)