Fears about euro exaggerated, feels Chinese banker

A Chinese central bank adviser on Friday gave an upbeat assessment on the euro's long-term outlook, saying the global financial market may have overreacted to the European sovereign debt crisis.

Li Daokui, an academic adviser to the People's Bank of China, also told a financial forum in Shanghai that a major appreciation of the yuan is "impossible" because China's international payments are relatively balanced. He also repeated the official stance that yuan float will be in two directions.

His views may not necessarily reflect the central bank's official thinking, though he is at a position that his view can be heard by decision makers.

The comments came after the yuan rose to a modern-era high against the US dollar on the eve of the Toronto summit of the Group of 20 industrialised and developing nations. Many analysts said the yuan would return to gradual gains in the week ahead, as Beijing won't be willing to see sharp rises in yuan hurting local exporters.

A week ago, China removed its peg to the US dollar, in place for nearly two years, returning the currency to a managed-float system that pegs its value to a basket of currencies that includes the euro. China's officials have said the move will help ease the pressure on the yuan to appreciate against the euro amid the euro-zone debt crisis.

Li told the forum that he believes "the euro will likely fall against the US dollar and some other currencies in the short term but should rebound to a relatively high level in the mid-to-long term".