UPDATE 1-China May FX reserves hit $1.797 trillion -source

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BEIJING, June 25 (Reuters) - China's foreign exchange reserves rose $40.3 billion in May to $1.79696 trillion, a source familiar with the data told Reuters on Wednesday.

That marked a slowdown from a record $74.46 billion rise in April, based on data disclosed to Reuters last month.

But it was still significantly greater than the nearly $28 billion that flowed into China in May from the trade surplus and foreign direct investment -- a strong indication for many economists that speculative capital is still pouring into the country.

The source declined to be identified because he was not allowed to speak officially to the media.

China's official foreign exchange reserves have now risen $268.8 billion in the first five months of the year, compared with $461.9 billion in all of 2007.

May's slowdown in accumulation occurred even though the yuan's CNY=CFXS pace of appreciation picked up last month from in April.

In theory, that should have given hot-money investors greater reason to speculate on the currency. Authorities have voiced fears about the risks from outside investors betting on the yuan's continued appreciation.

Economic policy makers at the highest reaches of the Chinese government have met periodically to examine the issue of hot money inflows, which complicate the People's Bank of China's (PBOC) task of managing the money supply.