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UPDATE 1-China c.bank says "dramatically reduced" yuan intervention

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* yuan near equilibrium, central bank deputy head says

* yuan driven by market, intervention "dramaticallyreduced"

(Adds details, quotes) By Koh Gui Qing

TOKYO, Oct 12 (Reuters) - China argued on Friday that theyuan is close to its equilibrium level as the central bank has"dramatically reduced" its intervention in currency markets,rebutting criticism that Beijing suppresses the currency to helpexports.

China central bank's deputy governor Yi Gang said the factthat gyrations in the yuan, also known as the renminbi, were nowdictated by market demand and supply implied it was close toequilibrium, a level he said is otherwise tough to determine.

In unusually frank remarks, Yi said he expected China'seconomy to grow in the "neighbourhood" of 7.8 percent this yearwith annual inflation seen hitting around 2.7 percent, wellunder the government's 4 p ercent tar get.

Addressing investor concerns about the health of the world'sNo. 2 economy, Yi said China's property market has stabilisedand that Beijing was trying to balance competing needs ofsquashing speculation, and supporting a key pillar of theeconomy.

"I am glad to report to you that the renminbi exchange rateis very close to its equilibrium level," Yi said at a conferenceon the sidelines of International Monetary Fund and World Bankmeetings in Tokyo.

"People might not know that the People's Bank of China hasdramatically reduced the intervention in the market place. Forthe past more than one year, the official reserves of China havebeen flat," he said.

China's $3.3 trillion foreign exchange reserves have indeedhovered around the same level in the past year after leapingeight times in the last eight years to become the world'slargest stockpile.

Analysts say China's huge export revenues and itsundervalued currency contributed to the rapid build-up. Yi headsthe State Administration of Foreign Exchange, China's currencyregulator which manages the reserves.

Still, the yuan remains tightly controlled by Beijing. Thecentral bank fixes a mid-point for the yuan every trading day,from which the currency can rise or fall just 1 percent.

China's trade partners, especially the United States, havelong argued that Beijing deliberately holds down the yuan forunfair trade advantage. China has always denied theseaccusations.

The International Monetary Fund has said the yuan wasmoderately undervalued.

The yuan crept to a new closing high against the dollar onFriday for a second day after a stronger fixing of themid-point.

PROPERTY DILEMMA

China's property market, which accounts for 13 percent ofits gross domestic product and affects over 40 other sectors, ismired in its worst slowdown in three years.

A slowing Chinese economy and measures taken by thegovernment to stamp out speculation have hit the housing market,to the growing alarm of some economists who fear Beijing isover-asserting itself and hurting legitimate sources of growth.

Yi acknowledged those concerns on Friday in a rare admission

of Beijing's property dilemma.

"Housing prices in Beijing and Shanghai, the large cities inChina, are already very high. I think, you see, we shouldconsider policy measures to prevent a housing bubble. That isdefinitely not the scenario we want to see," Yi said.

"On the other hand, we also realise that housing (is) a veryimportant industry in terms of growth and also related toconsumption," he said. "So we are in a very delicate situationto maintain the stability."

China's house prices were scaling record highs before thegovernment, worried that unaffordable housing would triggersocial unrest, acted forcefully to stamp out exuberance.

Down payments were raised, property taxes introduced, andthe number of homes Chinese can buy were limited.

Yi said Beijing would continue to do what it can by buildingmore low-cost public homes, but added: "We have to respectmarket forces".

Compared to a year ago, China's house prices are stillfalling but a gentle recovery has taken hold on a month-to-monthbasis. Prices rose 0.1 percent in August from July.

China's economic growth is limping at three-year lows andanalysts polled by Reuters in September estimated full-yeargrowth will stand at 7.7 percent, the weakest in 13 years butstill above Beijing's 7.5 percent target.

(Reporting by Koh Gui Qing; Writing by Emily Kaiser; EditingNeil Fullick and Tomasz Janowski)

((emily.kaiser@thomsonreuters.com)(+65 6318 4763)(ReutersMessaging: emily.kaiser.reuters.com@reuters.net))

Keywords: IMF CHINA/