Special report: Yuan's exchange rate in spotlight

    BEIJING, July 7 -- China's yuan matched its post-revaluation high against the dollar in late trade Thursday but quickly came off that high amid dollar-buying interest among State banks, traders said.

    At 0745 GMT the yuan was at 7.9930, up from Wednesday's close of 7.9958 but off its intra-day high of 7.9915. That level, first hit on Monday, is the yuan's highest level since it was revalued in July 2005.

    Traders cited two reasons for the yuan's strength: the ending of a dollar short squeeze that dominated the market early this week and firmness of the yen against the dollar in global markets.

    The central bank set the mid-point of the yuan's rate at 7.9960 Thursday morning, suggesting to some traders that the 8.00 level had been decisively broken and that the yuan might be resuming its gradual medium-term appreciation.

    However, traders saw strong psychological resistance in the 7.9900-15 area and said that might not break for days longer.

    Despite speculation that the currency may be used as a tool to cool the economy, given the limited success of recent monetary tightening, the central bank remains unlikely to allow rapid appreciation, they said. That was reflected in the rapid retreat from 7.9915 Thursday.

    "The trend for the yuan is up, but the 'two steps forward, one step back' nature of the trend hasn't changed," said a trader at a State bank.

(Source: Shenzhen Daily/Agencies)