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. Last Updated: 07/27/2016

While China Diversifies Reserves, Dollar Declines

NEW YORK -- The dollar declined last week, touching the lowest against the euro in more than two months, after China's central bank governor said the nation was diversifying its foreign-exchange reserves.

People's Bank of China Governor Zhou Xiaochuan commented that the past two days at a Frankfurt conference touched on his struggle to manage the world's largest reserves and contend with demands to let the yuan strengthen.

The dollar weakened about 1 percent to $1.2841 per euro from $1.2718 on Nov. 3. The currency dropped as low as $1.2901 Saturday. The dollar fell to 117.62 yen from 118.01 one week ago.

Zhou, speaking with reporters the conference yesterday, said the People's Bank of China would maintain its policy of diversifying foreign-exchange reserves to promote "safety, efficiency and liquidity." When asked whether China was selling dollars, he said: "No."

The Asian nation's reserves are the world's biggest at about $1 trillion.

U.S. assets may comprise 72 percent of China's reserves, according to Miller Tabak & Co. in New York.

Pacific Investment Management, manager of the world's biggest bond fund, said the dollar would fall as China's central bank cut the share of U.S. assets in its reserves.

"Support for the dollar from China is likely to wane in coming years," Richard Clarida, a global strategic adviser, and fund manager Sudesh Mariappa wrote in the report on Pimco's web site.

The euro's gains against the dollar were spurred by European Central Bank President Jean-Claude Trichet's assertion that Europe's growing money supply would be a factor in the central bank's rate-setting decisions.