Mumbai: Chinese currency yuan appreciated to 7.4934 against the dollar, posting its biggest gain in a month, driven by a widening trade surplus and inflows of foreign funds.

The yuan is now at its highest against the dollar since the Chinese central bank ended a fixed exchange rate in July 2005. Currency dealers expect the yuan to break above 7 a dollar by the end of next year.

China''s currency has appreciated 10.5 per cent since the end of the dollar peg.

European and US officials are not yet satisfied with the yuan''s gains as they feel it insufficient to reduce trade imbalances between the nations and to protect jobs.

Currency traders and investors are betting on the yuan. They feel it is the best currency to buy right now. The currency climbed 0.15 per cent to 7.4934 per dollar as of 2:56 p.m. in Shanghai.

Forward contracts show the yuan will reach an implied rate of 7.0190 in 12 months, a gain of 6.7 per cent from the spot rate, and 6.96 by the end of 2008.

To curb market expectations of continued appreciation, the government may revalue the yuan by as much as 20 per cent and then maintain ``relative stability, according to a note circulated inside China''s National Development and Reform Commission, reports said.

Premier Wen Jiabao had, in September, said China''s top priority was to prevent the economy from overheating. Consumer prices rose 6.5 per cent in August from a year earlier, twice the central bank''s target. China has built up $1.4 trillion in foreign-exchange reserves while managing its currency to keep exports competitive.

Since scrapping the yuan''s link with the dollar, the currency has been managed against a basket of currencies, including the euro, the Japanese yen, South Korean won and the British pound. The yuan is allowed to trade 0.5 per cent either side of a daily reference set by the central bank.