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Sat, Dec 11, 2004 - Page 12 News List

Beijing denies selling off US Treasury bond assets


China yesterday denied that it has reduced the US dollar assets in its foreign exchange holdings, speculation that last month helped push the euro to a new all-time peak against the US unit.

The State Administration of Foreign Exchange (SAFE) said it was "definitely impossible for China to participate in foreign exchange rate speculation."

"We are very concerned about the fluctuation of the international foreign exchange market but we don't re-adjust our currency structure in response to the short-term movements in the market," it said in a statement on its Web site.

The comments were in response to a report last month that China had cut the size of its US Treasury bond holdings in its foreign exchange reserves to US$180 billion to avoid losses from a weakening US dollar.

News of the report triggered further selling of the dollar.

The dollar rose through ?105 yesterday in Asia trade to stand more than 3 percent above last week's five-year low. The dollar fetched around ?105.36, up from late levels in New York, where it rose as far as ?105.02. That high was up nearly 3 percent from the dollar's five-year low of ?101.83 touched last week.

The US currency strengthened to around US$1.3242 against the euro from US$1.3312 in late US trade, and widening the gap from a record low of US$1.3470 hit earlier in the week.

China's central bankers have talked about the need to diversify their holdings as US Treasurys have constituted the bulk of China's foreign exchange holdings.

The SAFE also denied making significant losses on its US dollar assets as a result of the currency's decline. In addition, it shrugged off concerns about speculative money flowing into China in anticipation of a yuan revaluation.

"While there are some loopholes in China's financial market which might be used by international currency speculators, they will pay a high price ... as the capital account is not completely open. Therefore [the speculation] is unlikely to have a big impact on China's financial system," the statement said.

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