Mumbai: China has widened the trading band for its currency the yuan, raised interest rates and curbed bank loans to tame a runaway economy and ease trade tensions with the US and Europe.

The yuan will be allowed to move as much as 0.5 per cent either side of a daily fixing rate against the dollar, up from 0.3 per cent, the central bank said.

The measures were announced on the central bank''s web site ahead of a meeting between Chinese vice premier Wu Yi and US treasury secretary Henry Paulson on May 22-24 in Washington.

A stronger yuan will help limit the export-led expansion that has flooded the banking system with cash, raising concern about a stock market bubble in the world''s fastest-growing major economy.

The currency closed at the highest since China ended a link to the US currency in July 2005, rising 0.1 per cent for the week to 7.6686 per dollar at 5:30 p.m. in Shanghai, according to the China Foreign Exchange Trade System. The central bank has allowed the yuan to increase 7.9 per cent since the end of the fixed exchange rate.

The one-year benchmark lending rate will be raised to 6.57 per cent — the highest in more than eight years - from 6.39 per cent, starting May19, the People''s Bank of China said. The one-year deposit rate will be increased to 3.06 per cent from 2.79 per cent. It''s the first time since 1993 that China has raised deposit rates more than lending rates.

Lenders must put aside 11.5 per cent of deposits starting from June 5, up from 11 per cent, the People''s Bank of China said. That is the fifth increase in banks'' reserve ratios this year, compared with three in all of last year.

Higher interest rates may also cool this year''s stock market gains. China''s benchmark CSI 300 Index of stocks has soared 85 percent this year. Li Ka-shing, Asia''s richest man, yesterday warned of a bubble in China''s stock market, echoing comments by People''s Bank of China Governor Zhou Xiaochuan.

The nation''s trade surplus, which ballooned 74 per cent last year to a record $177.5 billion, drove the country''s foreign- exchange reserves to an all-time-high of $1.2 trillion, making it difficult for the government to slow growth.

China''s economy expanded 11.1 per cent in the three months ended March 31, exceeding 10 per cent for a fifth quarter.

China needs to develop a more flexible exchange rate, the National Development and Reform Commission, the nation''s top planning agency, said on April 25.