Yuan ends up vs dlr, defies slower economic growth

By Lu Jianxin

SHANGHAI, Jan 22 (Reuters) - China's yuan closed up slightly against the dollar on Thursday as signs that the Chinese central bank is determined to keep the yuan stable for the time being helped to offset the negative impact of weak macroeconomic data.

China's economic growth slumped to 6.8 percent last quarter, dragging down the pace of expansion for all of 2008 to a seven-year low of 9.0 percent as the full force of the global financial crisis struck home, data showed on Thursday. [ID:nPEK340437]

The National Bureau of Statistics also said China's annual consumer price inflation slowed to 1.2 percent in December from 2.4 percent in November. Such a CPI reading could herald more interest rate cuts, a negative for the yuan's exchange rate.

"All these figures point to a likely weakening yuan at least for the short term," said a dealer at a major European bank in Shanghai. "But the central bank has set the tone for a stable yuan through its persistent and little changed mid-points."

Before trade began on Thursday, the People's Bank of China set the yuan's mid-point against the dollar CNY=SAEC at 6.8373, slightly higher than the reference rate of 6.8396 on Wednesday.

It has kept the mid-point in a tight range of 6.8322 to 6.8399 over the past month as it seeks to prevent big capital outflows from China amid the country's steeply weakening economy.

Jin Yanshi, chief economist at Sinolink Securities in Shanghai, said Thursday's economic growth data was worse than the market's consensus and thus presented a challenge to China's growth target of 8 percent for 2009.

"The government has realised the fact that the economy is declining and regards the 8 percent target as a political task."