As key Chinese economist cautioned that appreciation of local currency will drive exporters out of business, China’s yuan slid lower against the U.S. dollar late Friday afternoon due to the U.S. unit’s strength against other major currencies during Asian trading hours.

Comments by Chinese bankers today underscores the domestic political pressures on Beijing amid growing international calls for China to let the yuan rise.

Vice Commerce Minister Zhong Shan told Wall Street Journal Thursday ahead of a visit to the U.S., said that the profit margin on many Chinese export goods was less than 2%.

On the over-the-counter market, the dollar was at CNY6.8265 around 0930 GMT, up from Thursday's close of CNY6.8261. It traded between CNY6.8258 and CNY6.8267, Dow Jones reported.

The ICE Dollar Index, which tracks the U.S. currency against a trade-weighted basket of currencies, rose to 80.429 at 0930 GMT from 80.272 late Thursday in New York.

However, the dollar's gains in China's onshore market were capped by the steady central parity. The dollar-yuan central parity was set at 6.8263, almost unchanged from 6.8262 Thursday.

“The market is quiet today, as the strength in the overnight dollar only pushed the central parity higher by one point,” said a Shanghai-based foreign bank trader.

Traders said they expect the dollar to climb in the onshore market as dollar demand is likely to increase because of import payments at month-end.

Offshore, one-year dollar-yuan nondeliverable forwards were at 6.6601/6.6641, down from 6.6650/6.6700 late Thursday.

Mr. Zhong talked about a potential tipping-point effect to describe the fragile situation of many exporters. “Water doesn’t boil if it is heated to 99 degree Celsius. But it will boil if it is heated by one more degree,” he said. Likewise, “a further rise in the yuan by a very small magnitude might cause fundamental changes” to exporters in China, he said.

The yuan climbed 21% against the dollar from 2005 to 2008, when China adopted a managed-float currency system under which the yuan’s value was linked to a basket of currencies. But the yuan has been kept almost unchanged against the dollar since the outbreak of the global crisis to help Chinese exporters, which has prompted much criticism from abroad.

But the greenback rose against other higher-yielding currencies, benefiting from the flight from risk triggered by monetary tightening in China and the stock market’s weakness on disappointing earnings reports.

“It’s all about risk aversion,” said Camilla Sutton, a currency strategist at Scotial Capital in Toronto.

The Japanese currency also advanced sharply against the euro, pushing Europe’s common currency to a session low at Y131.64, its lowest level since Jan. 5. The dollar dipped to a session low of Y90.73, its lowest level since Dec. 21.

Tuesday afternoon in New York, the dollar was at Y90.95, down from Y92.06 late Monday, while the euro was at Y131.73, down from Y133.78, according to EBS via CQG.

The euro was at $1.4489, down from $1.4524 late Monday.

The U.K. pound was at $1.6165, up from $1.6112.

The dollar was at CHF1.0185, up from CHF1.0157. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 77.011, up from 76.983. As a result, Deutsche Bank’s PowerShares US Dollar Index Bearish (UDN) exchange-traded fund was trading down 0.02% from late Monday, while its PowerShares US Dollar Index Bullish (UUP) was unchanged from a day ago.

The two exchange-traded funds are based on Deutsche Bank currency futures indexes, whose composition mirrors that of ICE’s Dollar Index.

For most of 2009, the dollar weakened against the yen, hitting a 14-year low of Y84.82 in late November, as near-zero interest rates in the U.S. prompted investors to borrow cheap dollars to fund purchases of higher-yielding currencies, a role traditionally played by the yen.

The dollar rallied against the yen through December and early this year, but has retreated since Friday as short-dated Treasury yields, the most sensitive to official rate changes, have fallen.

Friday’s disappointing U.S. jobs report suggested that the Fed will remain on hold for a while, triggering renewed weakness in the greenback.

Federal Reseves comments that the US interest rates may remain low for “quite some time,” also hurt the dollar today.

Positive global economic data point to a continuing recovery, which is benefiting the euro and commodity-backed and emerging-market currencies, and persistent troubles in the U.S. labor market weigh on the dollar.

The lagging U.S. jobs report is “mostly perceived as a dollar issue and not as a broad risk event,” especially when Chinese data reported overnight points to a strong recovery there, Sebastien Galy, currency strategist at BNP Paribas in New York told Dow Jones.

Monday morning in New York, the euro was at $1.4525 from $1.4414 late Friday, according to EBS via CQG. The dollar was at Y92.47 from Y92.59, while the euro was at Y134.33 from Y133.48. The U.K. pound was at $1.6158 from $1.6034. The dollar was at CHF1.0163 from CHF1.0237.

The Indian rupee also rose to its highest level in more than 15 months against the U.S. dollar, benefiting from the greenback’s global weakness and hopes of capital inflows into the strongly growing Indian economy.

The dollar was at INR45.34 late Monday after falling to INR45.28, last seen on Sept. 22, 2008. It was down from INR45.76 Friday.

“The rupee has rallied quite a bit. Technically, there should be a correction, but it would only be mild,” said the foreign exchange trading head at a large private bank.

The local currency has risen more than 6% since October as a strengthening economy and relatively higher interest rates lure foreign investors back. Foreign funds bought more than $17 billion of local shares in 2009 after having sold more than $13 billion of shares the year before.

 A slew of initial share sales lined up mostly in February are likely to provide further strength to the local currency, the dealer added.

Though China might have replaced Germany as the worlds’ biggest exporter in 2009, but it cannot be considered a “powerful trading nation” according to Vice Commerce Minister Zhong Shan.

It is expected that Chinese exports will grow further in 2010. Zhong did not elaborate further on this. Since the global financial crisis, China’s exports affected to a great extent, falling 18.8% in the first eleven months last year. It is noted that the market share for Chinese products has increased in 2009 because sales from other countries have fallen further. This was stated by Zhong in a forum at University of International Business and Economics in Beijing.

There have been reports of other countries blaming China’s unofficial policy of bringing down the yuan to the dollar in 2008 and making products that are competitive in an artificial sense. China is bound to feel pressure on its Yuan policy but shall be maintaining stability in replication of its government policy. Zhong also said that the growth in exports is essential at this point to raise economic growth and create more jobs in the country.

As an example he stated that the exports of 30 million shirts have benefitted Chineses economy more than exporting one Boeng 747. This was in reference to a debate over support China should offer to labor intensive export industries versus how much it should move up the value chain. By this he meant since exporting 30 million shirts will create jobs for approximately 10,000 people by which their families and 30,000 will have a comfortable life.

China is also pressurized from trading partners to bring balance to its outsized trade surplus. But Zhong particularly mentioned that it does not mean a reduction in exports.

President Obama has told China to import more and export less, thereby save less and spend more. On this Zhong disagrees that China has been exporting too much.