UPDATE 1-China spreads out FX reserves risk -currency chief
* China FX chief says reserves diversified, safely invested
* Shunning short-term speculation, China says returns normal
* More capital poised to pour into China in 2010
By Zhou Xin and Alan Wheatley
BEIJING, March 9 (Reuters) - China's $2.4 trillion stockpile of foreign exchange reserves is appropriately diversified in dollars, euro and yen and is not used for short-term speculation in the currency markets, a senior official said on Tuesday.
Yi Gang, head of the State Administration of Foreign Exchange (SAFE), said expectations of a stronger yuan would intensify this year, attracting capital inflows into China, because of the country's relatively high interest rates.
"Currently, China has built a moderately diversified currency structure including the U.S. dollar, euro, Japanese yen, etc," Yi said in a statement ahead of a news conference on the sidelines of the annual session of China's parliament.
The exact composition of China's reserves, the world's largest, is a state secret and the subject of intense scrutiny by global investors aware that, with such large sums at stake, even marginal portfolio shifts have the potential to move markets.
Bankers assume two-thirds of the reserves are invested in dollar assets.
"The foreign exchange reserves are mainly invested in bonds issued by governments and government agencies of the developed and developing countries with high credit ratings, assets issued by companies and international organisations, funds and so on," Yi said.
He said China succeeded in both 2008 and 2009 "in preserving the overall security of its foreign exchange assets, with operating incomes close to those of the pre-crisis years".
As well as managing China's official reserves, SAFE is China's foreign exchange regulator.
Turning to this year, Yi said the gradual recovery of the global economy pointed to renewed momentum in Chinese exports.
"With foreign direct investment expected to increase steadily, China will be facing greater pressures from the rising amount of foreign exchange cross-border fund inflows," he said.
China's relatively high interest rates, combined with expectations of an appreciation in the yuan CNY=CFXS, might suck in some "cross-border arbitrage" funds, he added.
"And there will be a tendency for a larger portion of the assets of enterprises and institutions to be converted to domestic currency, with a greater portion of liabilities of enterprises and institutions converted into foreign currencies," Yi said. (Reporting by Zhou Xin and Alan Wheatley; Editing by Ken Wills)
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