Yuan slips vs dlr but has record quarterly rise

By Lu Jianxin

SHANGHAI, March 31 (Reuters) - The yuan dipped against the dollar on Monday, guided by the Chinese central bank ahead of a visit to China by U.S. Treasury Secretary Henry Paulson, but its appreciation in the first quarter is set to be the biggest since the creation of China's foreign exchange market in 1994.

"China typically guides the yuan slightly lower ahead of visits by key Western economic officials, to leave room for it to rise a bit faster during those visits," said a dealer at a European bank in Shanghai.

"So we are not surprised to see the central bank set weaker yuan mid-points over the past two days. But the yuan is almost certain to breach the psychologically important 7.0000 level this week during Paulson's visit."

Paulson is scheduled to arrive in Beijing on Tuesday and to remain until Thursday night. Alan Holmer, the Treasury's special envoy to China, told reporters on Friday the main focuses of the trip would be investment and economic issues.

Holmer said Paulson would renew the U.S. call for Beijing to let the yuan appreciate more quickly, but pointed out that since it was freed from its peg to the dollar in July 2005, it had appreciated roughly 18 percent against the dollar.

Before trade began on Monday, the central bank fixed the yuan's daily mid-point CNY=SAEC to the dollar at 7.0190, weaker than 7.0137 on the previous day -- its second straight weaker reference rate.

This caused the yuan CNY=CFXS to trade at 7.0142 at midday, down from Friday's close of 7.0120. However, it was trading substantially higher than its mid-point, suggesting expectations for appreciation to resume soon.

For the first quarter, the yuan has jumped 4.13 percent, far exceeding the previous record quarterly appreciation of 2.77 percent hit in the October-December quarter last year.