ANALYSIS - China's caution on yuan signals no early move

By Kevin Yao

SINGAPORE (Reuters) - Investors betting on a yuan rise early next year will be disappointed as China is likely to keep the currency on a tight leash at least until the middle of 2010 to cement the country's economic recovery.

Annual growth in the world's third-largest economy accelerated to 8.9 percent in the third quarter, rapidly rebounding after hitting a trough of 6.1 percent in the first quarter and putting the government's full-year target of 8 percent within reach.

But comments from top Chinese officials attending a meeting of Asia Pacific Economic Cooperation (APEC) countries in Singapore highlighted their worries over the strength of the recovery, which remains nascent and stimulus-driven.

At the heart of their concern is the weakness in exports, which analysts say hold the key to any move in the yuan. Exports are unlikely to regain a solid footing until well into 2010.

Assistant Finance Minister Zhu Guangyao said a 4 trillion yuan stimulus package as well as a stable yuan policy contributed to the quick rebound in China, which was leading the global recovery.

Jiang Jianqing, the chairman of the country's biggest commercial lender the Industrial & Commercial Bank of China, echoed Zhu, saying a stronger yuan would not be conducive to the global recovery and the stable currency should not be changed abruptly.

Such policy signals suggest Beijing may not tinkering with the yuan until the second half of 2010 and any rise would be a gradual one, analysts say.

"If China's economy recovers further, the yuan may remain largely steady or strengthen slightly. But if China continues to face pressures on export front, it's unrealistic to demand China to let the yuan appreciate," said Zhao Xijun, an economist at Renmin University in Beijing.