ASSOCIATED PRESS in Shanghai

Updated at 5.54pm:
The yuan rose to a new high against the US dollar on Tuesday, a day after the United States government decided against accusing the mainland of manipulating its currency to gain trade advantages.

The yuan ended trading at 8.0796 to the US dollar on Tuesday, its strongest close since China revalued the currency on July 21 to 8.11 yuan to the dollar, up 2.1 per cent from its previous, fixed exchange rate. The dollar bought 8.0825 yuan at Monday's close.

Since July 21, the yuan has risen by just 0.37 per cent against the greenback - far short of the kind of appreciation that US manufacturers would like to see.

Many US companies contend that China intentionally keeps the value of its currency low to give its exporters an artificial price advantage, contributing to the huge American trade deficit with China, which rose to US$162 billion last year. The deficit is expected to hit US$200 billion this year.

But in a report it is required to submit to the US Congress every half-year, the government of US President George W. Bush determined on Monday that China was not manipulating its currency. Still, it urged Beijing to move quicker in loosening restrictions on trading in the currency.

Under the new currency regime announced in July, China cut the yuan's peg to the dollar and instead linked its value to a basket of currencies. Authorities also allow its value to vary by a maximum of 0.3 per cent above or below its opening figure in a single trading day.

Traders said the dollar's decline against the yuan on Tuesday was probably related to its weakness against the yen and euro in other markets. The yuan's previous high close against the dollar was 8.0805, on November 24.

China's central bank has signaled it expects the yuan's value to rise further against the dollar. But Beijing contends that the country's developing financial system needs time to adjust to a more volatile currency.

In a report published by the state-run China Securities Journal on Tuesday the central bank said the exchange rate system was becoming more flexible and "market-oriented" but it reiterated Beijing's insistence on not setting a timetable for allowing the yuan to trade freely.

"When the renminbi can become convertible depends on the situation of China's economic development and balance of payments," it said. "There's still no clear timetable currently."

Critics of the Chinese currency regime expressed disappointment over the US government's decision.

"The administration's lack of action today hurts all Americans by refusing to acknowledge the obvious - that China manipulates its currency," Democratic Senator Chuck Schumer of New York said on Monday.

Mr Schumer and Senator Lindsey Graham, a South Carolina Republican, are leading sponsors of legislation that would impose 27.5 per cent tariffs on all imports from China unless the country does more to allow its currency to rise in value against the dollar.

If the Bush administration had found China was manipulating its currency to gain trade advantages, that finding would have triggered consultations between the two governments.

The next report on China's currency policies is due to be presented to the US Congress in April.

US Treasury Secretary John Snow noted that Washington took China's July revaluation into account when making its decision on the status of Beijing's currency policies. However, he also urged China to step up the pace of its foreign exchange reforms.

Meanwhile on Tuesday, Japanese Finance Minister Sadakazu Tanigaki also called for faster reforms.

"Some time has passed since China scrapped its yuan peg to the dollar. My thinking is that China can now operate the new system a little more flexibly," Mr Tanigaki told reporters in Tokyo.