The yuan's gradual appreciation against the dollar has gained momentum in weeks leading up to an inaugural round of "strategic economic talks" involving top members of U.S. President George W. Bush's administration.

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The official, or parity, rate for the yuan was set at a record high of 7.8197. The yuan gained further in early trading, dealers said.

In July 2005, China revalued the yuan by 2.1 percent to 8.11 yuan per dollar. Since then, it has gained about 3.6 percent against the dollar.

In opening remarks to the trade talks, U.S. Treasury Secretary Henry Paulson said China's currency policies would be among topics tackled in the two days of discussions.

Many American manufacturers say Beijing keeps the yuan undervalued against the dollar, giving Chinese exporters an artificial price advantage in overseas markets and contributing to China's huge trade surplus.

China has pledged to gradually loosen foreign exchange controls and let market forces determine the yuan's value. 

Chinese officials contend that such changes must be gradual to avoid shocks to the country's developing financial institutions.

In comments at Thursday's meeting, Chinese Vice Premier Wu Yi echoed pledges to reform the currency system.

Wu, a former trade minister, said Beijing would move toward making the country's interest rates and the yuan's exchange rate "genuinely based on market supply and demand."

Following the Democratic Party's advance in midterm elections, Bush's administration faces renewed pressure to make progress in trimming the U.S. trade deficit with China, which surged to a record US$202 billion last year and is expected to run even higher this year.

The yuan's gain early Thursday ran counter to the dollar's overnight recovery against major currencies elsewhere.

The People's Bank of China, the central bank, announces the parity rate -- a weighted average of prices given by market makers, excluding the highest and lowest offers, early each trading morning.

On Wednesday, the dollar was at 7.8248 on the over-the-counter market.

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