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The yuan ended slightly lower on Monday as client demand for dollars late in the session erased early gains that were spurred by a series of strong economic data pointing to an earlier than expected recovery for Chinas economy. The yuan finished at 6.8352 to the dollar, down from Fridays close of 6.8336 after, after trading narrowly between a late intraday low of 6.8355 and the early intraday high of 6.8321.
"Banks saw a sudden rise in demand for dollars late in the session, pushing the yuan lower at the close," said a dealer at a North American bank in Shanghai. "But such demand typically fades quickly in the following days and wont have an impact on the long-term yuan trend. Otherwise, news from the economic front would have supported a yuan rise today." Chinese Premier Wen Jiabao said on Saturday that Chinas economy was in better shape than expected with March industrial output growth exceeding forecasts, although he added that the economy still faced big challenges.
Wen, speaking on the day when the central bank reported a record rise in new lending for March, said industrial output growth picked up to 8.3 percent last month from a record low of 3.8 percent in the first two months of the year.
Banks extended 1.89 trillion yuan ($276.6 billion) in new yuan loans in March, bringing the total for the first quarter to 4.58 trillion yuan, near the governments full-year target of at least 5 trillion yuan. Analysts saw the lending figures as a sign that Beijings moves to boost domestic demand were working, but they also cautioned against jumping to the conclusion that a rebound was just around the corner.
While the huge rise in bank loans has sparked worries that the government may act to slow excessive lending, the Peoples Bank of China said in a statement on Sunday that it would continue to implement a relaxed monetary policy and keep sufficient liquidity in the banking system.
The central bank also signalled its intention to keep its currency policy steady, setting the yuans daily mid-point against the dollar marginally higher at 6.8332 before trade began on Monday, up from Fridays reference rate of 6.8347 but within the 6.8300 to 6.8399 range it has maintained since mid-December.

Copyright Reuters, 2009

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