BEIJING (BLOOMBERG) - China's yuan surged by the most in more than a decade, catching up with US dollar declines during a week-long holiday, after the central bank chief voiced support for the currency and set its fixing at a one-month high.

The currency advanced 0.89 per cent, the most since the nation scrapped a peg to the US dollar in July 2005, to 6.5174 a dollar as of 9.46am in Shanghai, according to data compiled by Bloomberg. The offshore yuan traded in Hong Kong fell 0.18 per cent to 6.5201.

The People's Bank of China earlier raised the daily fixing against the US dollar, which restricts onshore moves to a maximum 2 per cent on either side, by 0.3 per cent to 6.5118, the strongest since Jan 4. A gauge of dollar strength declined 0.8 per cent last week, when onshore Chinese markets were shut for the Lunar New Year Holiday.

China's balance of payments is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, PBOC governor Zhou Xiaochuan said in an interview published on Saturday in Caixin magazine.

A global equity bear market worsened in Asian trading last week, with Japanese stocks suffering their biggest drops since 2008. China's foreign-exchange reserves shrank by US$99.5 billion (S$139.25 billion), the second- biggest decline on record, in January as the central bank sold dollars to fight off yuan depreciation pressure.