BEIJING • The People's Bank of China (PBOC) sold a record amount of foreign currency in December, more than twice as much as in any previous month, as it stepped up yuan purchases to stem a slide in the currency.

The central bank's foreign exchange assets tumbled by the equivalent of 708 billion yuan (S$155 billion) to 24.85 trillion yuan, data showed yesterday. That compares with a drop of 2.21 trillion yuan for the whole of last year and is similar to the US$107.9 billion slide in the nation's foreign exchange reserves that was previously reported for December.

The yuan fell 1.5 per cent last month, the most since August, when a surprise devaluation was announced. China has been supporting its exchange rate in both Shanghai and Hong Kong in recent months, seeking to limit depreciation that roiled global financial markets.

That support is coming at a growing cost to the nation's foreign exchange reserves as slowing growth in the world's second-largest economy spurs an exodus of funds.

"The record drop illustrates that capital was leaving at a faster pace and the PBOC supported the exchange rate last month," said Commerzbank AG economist Zhou Hao in Singapore. "The trend of outflows will definitely continue in the coming months as the market expects the yuan to decline further. But the exchange rate will remain stable in the near term as investors are cautious now due to the PBOC's intervention this week."

The yuan strengthened 0.1 per cent against the US dollar this week in Shanghai, after sliding 1.5 per cent in the five days through Jan 8.

PBOC research bureau's chief economist Ma Jun said this week that downward pressure on the yuan will ease after investors absorb a shift to valuing it versus a basket of currencies and away from linking it to the dollar.

BLOOMBERG