Some analysts said they should be careful what they wish for.

While a rise in the yuan may lead to an increase in the exports of some US-made products, it may also lead to higher interest rates, leaner stock portfolios, more expensive shopping trips, weaker hiring prospects and lower profits at companies such as General Motors, Wal-Mart Stores, Dell and Coca-Cola.

``Politicians are playing with fire,'' said Ronald McKinnon, an economics professor at Stanford University in California.

Nouriel Roubini, a former adviser to treasury secretary Robert Rubin, said the United States' reliance on China to plug record US budget deficits means lawmakers risk ``biting that hand that feeds'' the economy.

China has pegged the yuan at 8.3 to the dollar since 1995, buying and selling it to maintain that level. That means as the dollar dropped 14 percent against other currencies over the past three years, the yuan depreciated by the same amount.

Deputy finance minister Li Yong said last week the government is ``working very hard'' to revise its exchange-rate system but no decision has been made on the format or timing of the revision.

Roubini and other economists such as Nobel laureate Paul Samuelson said the peg gives mainland-made goods an unfair advantage that has led to distortions in global trade. Yet they warn a revaluation will also sting the US$11 trillion (HK$85.8 trillion) US economy, which for two years has experienced strong economic growth thanks to low interest rates and solid consumer spending.

US companies may find the costs of mainland-made clothes or components rising if the yuan appreciates.

China ``offers Americans access to high-quality, low-cost goods,'' said Morgan Stanley chief economist Stephen Roach. Since the United States is going to have a trade deficit anyway, ``it makes eminent sense to trade most aggressively with the world's low-cost producer,'' he said.

Inflation may accelerate if import costs rise, and that may lead to an increase in interest rates. The cost of mainland-made goods imported into the United States fell 0.6 percent in the year through March, according to the US Labor Department.

Borrowing costs may also rise if China cuts purchases of US Treasury securities that it buys to cap the yuan's value, bond traders said.

Mainland holdings of US government securities rose 27 percent in a year, to a record US$196.5 billion in February. Both Federal Reserve chairman Alan Greenspan and economists at Goldman Sachs recently estimated that foreign purchases of Treasuries are keeping market rates as much as 50 basis points below where they otherwise would be.

``China's consumption of Treasuries means yields are lower than they otherwise would be,'' said Mohamed El-Erian, fund manager at Pacific Investment Management in Newport Beach, California. ``That's been good for the US consumer and also good for companies producing those goods who have been able to avoid a downturn.''

Low yields help restrain mortgage and other borrowing rates, which are set in relation to US government securities.

US companies which have taken advantage of the yuan peg to invest in China may find it more expensive to do business there. That might pare their profits and ability to invest at home and hire more workers.

``If the yuan goes up in value, that will eat into the Chinese-generated profits of US companies,'' said Gary Hufbauer, a former US Treasury economist and now a senior fellow at the Institute for International Economics in Washington.

To critics, the yuan peg helped produce a record US$665.9 billion US current account deficit last year and encouraged US companies to relocate production to the mainland, contributing to the loss of 1.3 million manufacturing jobs over the past three years.

``China's currency is undervalued and has such a significant impact on trading partners it needs to be adjusted,'' South Carolina Republican Senator Lindsey Graham said. He has proposed legislation that will impose duties on mainland imports if the peg is not changed.

While Samuelson and Roubini agree a revaluation is necessary, they said that how and when is important.

Roubini said if China acts before the United States begins narrowing its US$412 billion budget deficit, yields on the benchmark 10-year Treasury note may surge 200 basis points.

Samuelson, who won the Nobel Prize for economics in 1970, said the dollar may also suffer a ``run on it.''

And for the risk, the rewards to the overall US economy of a more flexible yuan may be minimal.

A January study by Stephen King, head of global economic research at HSBC Holdings in London, concludes even a 25 percent revaluation ``would scarcely make any difference'' because China accounts for less than 10 percent of total US trade.

The US Commerce Department said in a confidential report to Congress this year a revalued yuan will be more of a boon to other Asian nations than to the United States

Robert Mundell, winner of the 1999 Nobel Prize for economics, agrees that a yuan shift ``is not going to solve the US current-account deficit.''

Given the size of China's trade with the United States, ``it's just going to be a drop in the bucket,'' he said.

BLOOMBERG