China's yuan closed lower against the dollar on Monday as weakness in the stock market spurred selling and erased gains fuelled by renewed official pledges of currency reform, dealers said. The yuan closed at 7.7500 to the dollar, weakening from Friday's close at 7.7465.
Monday's early intraday high of 7.7389 was within striking distance of last Wednesday's peak at 7.7378, the yuan's highest intraday trading level since Beijing revalued the yuan and depegged it from the dollar in July 2005.
But the yuan relinquished its gains under pressure from a nearly 4-percent fall in China's benchmark stock index in the afternoon session. The stock index closed down 1.6 percent. A surge in the Japanese currency also added to uncertainty in the currency markets, leaving some investors wary about buying the yuan, dealers said.
The yen has risen as market players frantically unwind carry trades, in which investors fund purchases of high-yielding currencies and assets by borrowing in low-yielding currencies such as the yen.
Carry trades had played a role in the yen's broad slide that took it to a 21-year low on a trade-weighted and inflation-adjusted basis in January. The yen surged across the board on Monday, striking a three-month high against the dollar and stoking investor nervousness about riskier assets.
The yuan is allowed to rise or fall by 0.3 percent a day against the dollar from a morning mid-point fixed by the People's Bank of China, the central bank. Before trading started on Monday, the central bank set the yuan's daily mid-point rate at 7.7403 per dollar, the highest level since the revaluation - a move some dealers believed was a goodwill gesture ahead of a visit to China by US Treasury Secretary Henry Paulson on Wednesday.