The yuan's appreciation this week may be tamed after China's central bank governor has said inflation should not be the "main reason" for the currency's rise.
The yuan finished at 7.1059 to the US dollar on Friday, up from 7.1133 the previous week.
Zhou Xiaochuan, governor of the People's Bank of China, has said inflation should not be the "main reason'' for the yuan's movements or for further reforms to the exchange rate system.
Economists had expected the yuan to rise faster to fight inflation that topped 7.1 percent in January, the highest in 11 years.
But a stronger yuan has likely lured foreign capital inflows to the mainland via foreign direct investment. China recorded an unusual rise in FDI inflows in January.
"Accelerating the yuan's rise did not help to mop up excess liquidity in battling inflation. Beijing may abandon using the yuan to fight inflation,'' Sumei Tang, an economist at Moody's Economy.com, said.
(Shanghai Daily March 10, 2008)