orted on Nov. 7, citing the nation's currency administrator. U.S. assets may comprise 72 percent of China's reserves, according to Miller Tabak & Co. in New York.

``The market is taking this as a hint that China may speed up its pace of diversification away from the dollar and into other currencies,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut.

The dollar traded at $1.2836 per euro at 2:06 p.m. in New York from $1.2757 yesterday. The U.S. currency touched $1.2848, the lowest since $1.2875 on Sept. 5. The U.S. currency traded at 117.91 yen from 117.84. The dollar earlier reached 118.59 yen.

The U.S. trade deficit with China rose to an all-time high of $23 billion in September, from $22 billion in August, according to a government report. Imports from China increased to a record $27.6 billion in September. U.S. exports to the Asian nation fell to $4.6 billion.

The growing deficit in trade with China overshadowed a narrowing of the overall U.S. trade deficit. The shortfall, which was smaller than forecast, declined to $64.3 billion from an all-time high in August of $69 billion, the Commerce Department said in Washington.

Cheap Exports

China has been criticized by U.S. lawmakers who say it works to keep the value of its currency undervalued to maintain cheap exports, worsening the U.S. trade deficit.

Gold rose after the announcement by the Chinese central bank's governor. Futures for December delivery increased $18.50, or 3 percent, to $636.80 an ounce on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest gain for a most-active contract since June 30.

When asked whether China planned to shift its reserves away from Treasury notes and into higher-yielding U.S. corporate and mortgage-backed debt, Zhou said China is considering ``lots of instruments'' for diversification.

``All central banks are trying to diversify,'' he told Reuters on the sidelines of a European Central Bank conference in Frankfurt. ``We have had a very clear diversification plan for several years.''

`Waiting and Fearful'

``The market has long been waiting and fearful of any Chinese indications to diversify,'' said Brian Dolan, research director at Forex.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey, which has about $250 million worth of funds under management. ``The prime beneficiaries will be the euro, yen, pound and Australian dollar.''

The People's Bank of China joins the Bank of Russia and the Swiss National Bank in announcing intentions to diversify currency holdings in the past month.

``The long-term impact is going to be dramatic and sustainable,'' said Firas Askari, head currency trader at BMO Capital Markets in Toronto. ``The dollar has long been the reserve currency for the entire world. Now with central banks saying they are going to diversify away from the dollar, the dollar will suffer. The euro will be one of the biggest beneficiaries of the trend.''

Opening the Gates

The yuan is trading near its strongest since China revalued the currency and allowed it to move as much as 0.3 percent in a day against a basket of currencies. The yuan closed at 7.8665 per dollar in Beijing from 7.8661 yesterday.

The Chinese currency has gained 2.6 percent against the dollar this year, compared with an 8.3 percent gain for the euro, a 7.8 percent increase for the South Korean won and a 0.2 percent decline for the Japanese yen.

``The gate is open for yuan appreciation,'' said Michael Malpede, a senior currency analyst in Chicago at Man Global Research.

Traders have speculated that Democratic control of Congress may make protectionist legislation more likely, which would add tension to the U.S. relationship with China.

China ``probably wanted to take some of the heat off'' following its record surplus in U.S. trade, Malpede said. Discussing reserve reallocation ``is a way of trying to deflect criticism.''

Since Sept. 27, the date by which Senators Charles Schumer and Lindsey Graham had threatened to vote on a bill to impose a 27.5 percent duty on Chinese goods to help narrow the U.S. trade deficit, the Chinese currency has gained 0.5 percent versus the dollar. It compares with a 1 percent gain for the euro, a 0.8 percent advance for the won and a drop of 0.4 percent for the yen.

Treasury Secretary Henry Paulson persuaded the senators to delay the vote.

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net ; Min Zeng in New York at mzeng2@bloomberg.net .

Last Updated: November 9, 2006 14:07 EST