C.bank guides yuan to post-reval high vs dollar

By Lu Jianxin

SHANGHAI, Feb 15 (Reuters) - The yuan hit its highest level
against the dollar since its 2005 revaluation on Friday after the
Chinese central bank set its daily mid-point, or reference rate,
at a post-revaluation high.

The choice of mid-point appeared to confirm the central bank
was still keen to appreciate the yuan faster this year to fight
inflation -- and ended remaining speculation that an intra-day
plunge of the yuan on Wednesday might have indicated a policy
change.

The central bank fixed the mid-point CNY=SAEC at 7.1763, up
from Thursday's 7.1890 and exceeding the reference rate's
previous post-revaluation peak of 7.1846, hit on Feb. 5.

"In setting such a high mid-point today, the central bank
seems to want to give the yuan more upward momentum in the near
term, to compensate for the loss of time when the market was
closed during the Lunar New Year holiday," said a dealer at a
Chinese commercial bank in Shenzhen.

Many traders think the People's Bank of China sets a rough
target for how much the yuan should rise each month, based on
economic conditions at the time. So the yuan may have to rise
faster in the second half of February to make up for the
week-long holiday in the first half.

The yuan CNY=CFXS hit a post-revaluation high of 7.1760 in
early trade on Friday, before pulling back a bit to trade at
7.1820 around midday, still up from 7.1904 at Thursday's close.

The Chinese currency is almost flat from 7.1818 at the end of
January. During that month, it jumped 1.7 percent against the
dollar.

Though dealers do not expect the yuan to rise at January's
rapid pace throughout this year, they forecast it will appreciate
more than 8.5 percent in 2008, and most of the rise may come in
the first half of the year given China's high inflation.

China is set to announce consumer price inflation for January
next Tuesday, and a strong rumour says the rate is an 11-year
high of 7.1 percent, which is also the median projection of a
Reuters poll of 17 economists.

Several dealers said they were maintaining their view that
the yuan could breach the psychologically important 7.0000 level
as soon as in roughly two weeks.

In the offshore market, one-year dollar/yuan non-deliverable
forwards CNY1YNDFOR= fell slightly to 6.6000/60 late on Friday
morning, compared with 6.6060/6.6110 late on Thursday.

Their latest levels implied yuan appreciation of 8.63-8.73
percent from Friday's mid-point over the next 12 months, against
8.74-8.83 percent implied on Thursday.
(Reporting by Lu Jianxin; Editing by Andrew Torchia)