By Belinda Cao

Dec. 27 (Bloomberg) -- The yuan rose the most since China ended its fixed-exchange rate to the dollar in 2005 as the government signaled faster gains to cool economic growth and curb inflation.

The currency climbed 0.37 percent after the official China Securities Journal cited Ba Shusong, a cabinet researcher, calling for appreciation to curb prices of imported fuel and food. The yuan may gain by a ``big margin,'' Yao Jingyuan, chief economist of the National Bureau of Statistics, told a seminar in Beijing in the afternoon.

``The economy is overheating in at least some regions,'' Yu Yongding, the director of the World Economics and Politics Institute in Beijing and a former central bank monetary policy committee member said in an interview today. ``The central bank now has more room to let the yuan rate float with more flexibility.''

The yuan gained as much as 0.41 percent to 7.3131 per dollar before trading at 7.3162 as of the 5:30 p.m. close in Shanghai, according to the China Foreign Exchange Trade System. The average daily fluctuation this week of 0.28 percent is three times larger than last week's. The currency's 6.7 percent gain versus the dollar this year is twice as much as last year's 3.3 percent advance.

The U.S. trade deficit with China is still set to exceed last year's record of $232.5 billion, prompting lawmakers including Senator Charles Schumer, a New York Democrat, to propose sanctions unless the yuan controls are loosened. U.S. Treasury Secretary Henry Paulson on Dec. 19 called for faster gains, while refraining from accusing China of manipulating its currency to make exports more competitive.

`Big Margin'

While the yuan gained against the dollar this year, it fell against 7 of the world's 17 most-active currencies. It slid 3 percent per euro, 11 percent versus the Canadian dollar and 13 percent against the Brazilian real, pushing up import costs.

A 10 percent appreciation in the yuan against the dollar would reduce the import prices of oil, soybeans and pork by about 10 percent, Ba, a deputy director at the State Council Development and Research Center, was cited as saying by the China Securities newspaper.

``The yuan may gain by big margin, which will help lower import costs and curb low-end exports,'' the statistical bureau's Yao said.

The central bank in a Dec. 21 statement said it plans ``forceful measures'' to limit money supply, including a more flexible exchange rate. The market will play a ``much'' bigger role in setting the yuan's value, policy makers said after a quarterly monetary policy meeting.

Rising Stocks

The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, has almost tripled this year pushing prices to 46 times per-share earnings, more than double that of Hong Kong's Hang Seng Index. It gained 2 percent today.

``We're seeing some big moves in the yuan,'' said David Mann, senior strategist at Standard Chartered in Hong Kong. ``It makes sense for them to get more aggressive in addressing the overheating pressures in the economy.''

The currency will rise to 6.84 by the end of 2008, he said.

The central bank this month raised rates for a sixth time this year to rein in credit growth, and lifted the reserve ratio to the highest in at least 20 years. The economy expanded 11.5 percent in the third quarter and consumer prices rose 6.9 percent in November from a year-earlier.

China's trade surplus, which surged 52 percent in the 11 months through November to $238.1 billion, has driven foreign- exchange reserves to record $1.46 trillion, making it difficult for the government to slow growth and tame asset-price inflation.

Trading Band

Policy makers discussed widening the yuan's trading band to 0.8 percent either side of a daily rate fixed by the central bank from 0.5 percent now, the Hong Kong-based Ta Kung Pao newspaper reported last month, citing an unidentified person.

``Either widening the trading band or another revaluation, the direction of faster appreciation is already set,'' former monetary policy maker Yu said.

The People's Bank of China on July 21, 2005, ended a decade-long link to the dollar, letting the currency move in reference to a basket of currencies including the euro, yen, British pound and Korean won. It strengthened the currency by 2.1 percent that day.

Forward contracts show traders are betting on an 8.7 percent advance in the yuan to 6.7344 per dollar in the next 12 months. The median estimate of 28 analysts surveyed by Bloomberg News is for a rate of 6.88 by the end of 2008.

Debt Sales

The central bank sold 2 billion yuan ($273 million) of three-year notes today at a yield of 4.52 percent. The rate climbed 5 basis points from that of similar-maturity debt issued a week ago. The yield at a three-month bill sale was unchanged at 3.41 percent. A basis point is 0.01 percentage point.

``There are plenty of funds available for debt investments, keeping yields on short-term bills stable,'' said Nie Shuguang, a fixed-income analyst at Industrial Bank Co. in Shanghai. ``Many PBOC bills sold previously are maturing this month, adding a lot of money to the market.''

The benchmark interbank seven-day repo fixing fell 10 basis points to 2.28 percent, compared with an average of 3.2 percent this month. The Shanghai interbank offered rate, or Shibor, for two-week funding fell 1 basis point to 2.4 percent.

The yield on the 4.35 percent treasury bond due November 2014 fell 2 basis points to 4.33 percent, according to the China Interbank Bond Market. The price rose 0.1 per 100 yuan face amount to 100.10.