Yuan ends up vs dollar as c.bank reaffirms policy

By Lu Jianxin

SHANGHAI, May 15 (Reuters) - The yuan closed higher against the dollar on Thursday and is poised for further gains in the near term after the Chinese central bank pledged to continue to use the yuan's exchange rate to help fight inflation.

The yuan also rose in the short-term offshore non-deliverable forwards (NDFs) although long-term NDFs still implied lacklustre appreciation, with dealers citing cautious sentiment among speculators who suffered heavy losses due to a surprising slowdown in the yuan's rise since early April.

"The central bank's first-quarter report indicated that the government's currency policy has not changed, and this gave the yuan some support today," said a dealer at a major Chinese state-owned bank in Shanghai.

The central bank issued its quarterly monetary policy report after the market closed on Wednesday, reaffirming its commitment to making the yuan more flexible, partly as a tool in the fight against inflation, although it also stressed the need to step up controls on illegal capital inflows to buy time for yuan reforms.

The market eagerly pored over the report in search of clues on the direction of the yuan, which suddenly ground to a halt over the past six weeks around 7.00 to the dollar after a 4.2 percent surge in the first quarter -- the fastest quarterly climb since the currency was revalued in 2005.

The rally was spurred when China's policy-makers proclaimed they would use the currency to fight inflation.

Two officials close to China's monetary policy-making process told Reuters on Thursday that the recent standstill in yuan appreciation was only "a pause for breath".

"A key reason (for the halt) was the difficulties facing Chinese exporters, and we want to give them a chance to take a breath," said an official at the National Development and Reform Commission, the country's top economic planner.