Dollar Rebounds Against Yuan
In Special Saturday Session

SHANGHAI -- China's yuan ended lower against the U.S. dollar Saturday in a special weekend trading session, one day after a skittish market sold the dollar on further speculation about a revaluation of the yuan.

The Saturday session was held because the country's onshore foreign exchange market will be closed for a week beginning May 1. Trading appeared to return to normal after Friday's sudden dip in the dollar, said traders.

The dollar closed higher at 8.2765 yuan, after trading between 8.2763 and 8.2765 yuan during the session, dealers said. It closed at 8.2764 Friday. "The trading is stable, and the selling and buying are almost balanced," said a local trader.

China's onshore foreign exchange market will be closed from May 1-7 for the country's Labor Day holiday. It will reopen May 8 for another special trading weekend session. All China's financial markets resume normal trading May 9.

.... a news report from China indicated Beijing could be willing to loosen its peg of the yuan to the dollar soon, a development that would weaken the U.S. currency. ....

Despite dismissal by China's central bank Friday that a policy change was imminent after the spate of dollar selling region-wide, speculation persists. Abn Amro said in a note issued Saturday that "(Friday's) volatility is a preview of what will likely come when the actual shift of the yuan takes place."

Irene Cheung, head of Asia forex strategy at Abn Amro, said in the note that China is getting close to a flexible yuan exchange rate, "but not quite there yet."

Capital Economics' economist Julian Jessop noted in his May 2 weekly report the advantages of making any change to the yuan during the Asian market holidays next week would be limited.

Moving during the holiday, when Asian markets are trading thinly and China is out for the week, may give market participants more time to digest the impact of any change and minimize volatility, but Mr. Jessop said a large majority of currency trading does not take place in Asia and once an initial move has been made, markets will immediately look for more, increasing speculative flows.

The Friday decline was spurred by a report in the China Securities Journal suggested China is ready to implement a change in its yuan policy, with only the timing up in the air. But a senior bank official in China was quoted by AFX News as saying the country's central bank hasn't received notice from the government to prepare for currency reform over the golden week holiday, suggesting that mounting speculation of a revaluation next week is misplaced.

The news is seen as dollar-negative because of the likelihood China would stop selling its own currency to buy dollar-based assets if it removes the fixed exchange rate. "If you think there is a good chance that China is going to get off the peg any time soon and you don't want to get into exotic currencies, your simplest bet is to buy the yen," said Sean Callow, chief currencies analyst at IDEAGlobal. "The assumption is that all Asian currencies would benefit if the peg is removed."

....... China's revaluation watch has become a widely followed global sport. Whatever China decides, any move is expected to be a pivotal event that could send ripples throughout the $1.9 trillion-a-day foreign-exchange market and influence the way the euro, the yen and other currencies trade against the dollar.

Friday, the dollar was higher against the euro after some market players interpreted a strong Chicago purchasing-managers report as a sign the Federal Reserve could switch to a more-aggressive rate-increase policy. ...........

The strong manufacturing report led some dollar proponents to hope .........set the stage for brisker rate increases than the incremental one-quarter percentage-point increases the central bank has ordered since June.