SHANGHAI (Bloomberg) -- China’s yuan rose to its highest level against the dollar in seven months on speculation the central bank will allow some appreciation in the currency as the economy starts to recover. Government bonds were little changed.

The currency gained by the most in three weeks after the central bank set a stronger reference rate for a fourth day, reflecting the dollar’s weakness. China’s manufacturing expanded in April for the first time in nine months after declines in export orders moderated, according to a purchasing managers’ survey published yesterday by CLSA Asia-Pacific Markets.
“The reference rates are indicating some slow appreciation,” said Zhang Li, a foreign-exchange trader at Industrial Bank Co. in Shanghai. “As the worst is probably over for China’s overseas sales, the exchange rate is not as important as before.”
The currency climbed as high as 6.8187 per dollar, the strongest level since Oct. 9, before closing 0.05 percent higher at 6.8199 in Shanghai, according to the China Foreign Exchange Trade System. It has advanced 0.05 percent this year.
China’s central bank fixed its reference rate at 6.8201 today, the strongest since September. The currency, which has strengthened 21 percent since a dollar peg was scrapped in July 2005, is allowed to trade by up to 0.5 percent either side of the daily rate.
“The market is still uncertain about the real direction,” said Zhang at Industrial Bank. “Only after the yuan breaks through the important 6.8 level, can we be sure the central bank will resume its gains.” -