YUAN ENDS UP AS CHINA, U.S. REITERATE POSITIONS

Shanghai, May 4 (Reuters)- The yuan closed slightly higher against the dollar on Wednesday as the Chinese and U.S. administrations reiterated their positions regarding the value of the two countries' currencies ahead of their top-level talks in Washington next week.

In a quarterly monetary policy report late on Tuesday, the People's Bank of China reaffirmed that the government will keep the yuan's exchange rate basically stable - a phrase that implies yuan appreciation against the dollar will be gradual and controlled in line with China's economic conditions.

U.S. Treasury Secretary Timothy Geithner said on Tuesday that China is starting to let the yuan rise more rapidly to curb inflation but needs to move even more swiftly toward a market-driven exchange rate.

Dealers said these remarks ahead of the U.S.-China Strategic and Economic Dialogue next week appear routine, but added that U.S. pressure for China to let its currency appreciate has significantly eased this year compared with last year.

"We don't expect the latest dialogue to give much play to the yuan issue," said a trader at a U.S. Bank in Shanghai. "The (U.S.) administration is realistic in handling the currency issue. With a conspicuous lack of congressional pressure this year, it is expected to be much more polite and more diplomatic”.

Still, the PBOC has guided the yuan to a slew of record highs this year, with the currency rising by 0.9 percent against the dollar in April, accelerating from 0.4 percent in March, at a time when the dollar sank to three-year lows against a basket of currencies.

Policymakers in Beijing have made it clear they will deploy the currency as a weapon to fight inflation, which hit a 32-month high of 5.4 percent in March, partly boosted by surging global commodity prices.

As there are few signs of a reversal in the weak dollar and surging commodity prices, the PBOC may continue to let the yuan edge higher, possibly at a faster pace to rein in inflation, traders said.

Temporary PBOC caution

Reflecting caution over rising anticipation of yuan gains ahead of the dialogue, the PBOC set the yuan's daily mid-point at 6.5013 against the dollar on Wednesday, slightly weaker than Tuesday's 6.5002.

The central bank uses the mid-point to express the governments' intention for the yuan's movements.

Spot yuan closed at 6.4933 versus the dollar, up marginally from Tuesday's close of 6.4968. It has now appreciated 5.12 percent since it was depegged from the dollar in June 2010, and 1.48 percent since the start of this year.

Offshore, one-year non-deliverable forwards (NDFs) were bid at 6.3280 at midday, up from 6.3150 at the previous close. Their implied yuan appreciation in a year's time fell to 2.73 percent from 2.95 percent.

<