China's currency strengthens

China's yuan on Thursday hit its highest level since Beijing pledged limited currency reform in June, as US Treasury Secretary Timothy Geithner prepares to face US lawmakers angry over its value.

The People's Bank of China set the central parity rate - the middle of the yuan's allowed trading band - at 6.7181, the strongest level against the dollar since Beijing vowed three months ago to let the yuan trade more freely.

The currency has appreciated 1.6 percent since the summer promise and gained 0.7 percent over the course of this week as US lawmakers readied for hearings on the sensitive issue.

China has a history of allowing the yuan to strengthen slightly ahead of events at which it expects to come under heightened pressure over the value of the currency, which Congressional critics say is grossly undervalued.

Geithner, who will testify before both House and Senate lawmakers on Thursday, told the Wall Street Journal last Friday that Beijing had done "very little" since vowing to loosen its grip on the currency.

When asked whether he was satisfied with China's progress on the issue, Geithner replied: "Of course not."

World Bank president Robert Zoellick threw his support behind calls for a strengthening of China's currency on Wednesday, telling reporters in Beijing that it would be "appropriate to have an appreciation of the currency."

China made the June pledge following intense pressure from the United States, Europe and other trading partners for a stronger currency.

The yuan had until then been effectively pegged at about 6.8 to the dollar since 2008.

Critics, led by US lawmakers, think the yuan is undervalued by as much as 40 percent, giving Chinese exporters an unfair price advantage and flooding the American market with cheap Chinese goods - but Beijing has repeatedly refuted those allegations.

"It is groundless for the US to criticise China's exchange rate policy simply according to the trade surplus alone," Chinese commerce ministry spokesman Yao Jian said Wednesday.

The US trade deficit with China fell slightly to 25.92 billion dollars in July from 26.15 billion dollars in June, the US Department of Commerce said last week.

China said Friday its trade surplus unexpectedly shrank in August to 20.03 billion dollars as imports accelerated - which analysts said would bolster Beijing's arguments for a limited appreciation of the yuan against the dollar. AFP