HK's Yam says rising yuan no threat to HK dlr peg

HONG KONG, Apr 8 (Reuters) Hong Kong's longstanding peg to the U.S. dollar will not be threatened by further rises in the value of China's yuan, the Hong Kong Monetary Authority's chief executive said in a series of television interviews.

Joseph Yam said the value of the yuan against the dollar could equal or surpass that of the Hong Kong dollar by the end of 2006, the South China Morning Post reported on Saturday in a summary of four interviews with local television stations that ran on Friday.

While such a development could spark hot money flows betting on a change in the territory's foreign exchange rate regime, Yam said speculators would soon beat a retreat as they realised Hong Kong ''will not change our currency policy''.

On Friday, the Hong Kong dollar ended around 7.7555 per U.S. dollar. The Hong Kong dollar is allowed to trade between 7.75 and 7.85 per U.S. unit. The initial peg, to which some modifications have been made, was introduced in 1983.

Speculators would also lose interest as it became clear that they could not use the Hong Kong currency to speculate on the value of the yuan, Yam said in the interviews.

The paper reported that Yam sought to ease market concerns that a rise in the yuan could mean that the yuan would supplant the territory's local currency.

''Whether the ratio (of the Hong Kong dollar to the yuan) is 1.1 or 0.9, it (will) merely (have) a psychological effect, not a real impact,'' he said.

The yuan ended Friday's trade at 8.0111 per dollar. On Thursday it traded to a high of 8.0050 -- which was its strongest level since Beijing revalued the currency by 2.1 percent last July and freed it from a dollar peg to float in managed bands.

Pressure has been mounting on Beijing to allow its yuan to appreciate further ahead of a visit by Chinese President Hu Jintao to Washington later this month.

Critics in Washington say China has been keeping its yuan undervalued to give Chinese exports an unfair advantage.

REUTERS MP SND1415