BIS, which is considered the world's central bank, said in its March quarterly report that the daily average trading in yuan rose to US$1.8 billion (HK$14.04 billion) in 2004, up a whopping 530 percent from 2001.

Corrinne Ho, Hong Kong-based economist of BIS, said the rapid expansion of yuan trading has coincided with a period of rising speculation over currency reforms on the mainland.

``The currency reforms basically boil down to expectations of the currency's appreciation against the US dollar,'' Ho said.

She said speculation over yuan appreciation has increasingly influenced the trading pattern of Asian currencies.

Speculation concerning mainland currency reforms, especially appreciation of the yuan against the greenback, has been doing the forex market rounds for over a year now.

China has come under increasing international pressure to revalue its currency, with critics of Beijing's foreign exchange policies arguing that the yuan is undervalued, making mainland exports cheaper and giving its manufacturers an unfair trade advantage.

Beijing says it plans to gradually let the yuan trade more freely, but has given no timetable, contending that China's fragile financial system requires a stable currency.

Many traders and analysts in global currency markets anticipate some move from China this year, most likely a widening of the band, although few expect immediate change.

China tightly controls foreign exchange dealings and keeps the yuan trading in a narrow range around 8.28 yuan per dollar.

The BIS report said that although the spot rate of yuan is still de facto fixed to the US dollar - with trading mainly confined to a mostly onshore market - an increasingly active offshore market in non-deliverable forwards (NDFs) points to future spot rate movements.

Currency analysts say yuan forward contracts, which allow investors to bet on the future value of the currency or hedge investments denominated in it, show the forex market expects the yuan to strengthen against the dollar.

On Monday, the one-year dollar/yuan NDF was quoted at a bid/offer discount of 3450/3300 during late Asian trade, wider than the 3300/3100 quoted Friday afternoon, Dow Jones Newswires reported.

Also on Monday, the People's Bank of China's (PBOC) governor, Zhou Xiaochuan, said China will relax restrictions on use of the yuan in Hong Kong.

Development of yuan business in Hong Kong has been smooth, Zhou said in Beijing.