Currency holdings rose 32.9 percent at the end of September from a year earlier, the People's Bank of China said on its Web site Tuesday. The increase of about US$97 billion over the quarter was down from a US$126.6 billion gain in the previous three months.

China has cut interest rates twice in the past month to stimulate growth as the worst financial crisis since the Great Depression dims the outlook for exports. The world's fourth- biggest economy can still expand 10 percent this year and 9 percent in 2009, central bank Deputy Governor Yi Gang said Oct. 11 in Washington.

"Close to US$2 trillion in foreign reserves provides China with a strong foundation and more room to adjust policies to enable it to maintain relatively fast growth," said Isaac Meng, senior economist at BNP Paribas SA in Beijing.

The yuan fell to 6.8390 against the dollar as of 5:30 p.m. in Shanghai, from 6.8360 before the data was released.

Smaller increases in the reserves -- down from a record US$153.9 billion gain in the first quarter -- suggest money is leaving the country as companies free up cash because of the credit crunch, said Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai.

The increase for September alone was only US$21.4 billion even after a record trade surplus added US$29.3 billion and figures for foreign direct investment suggested another US$6.6 billion entered the country.

China has stalled the yuan's gains against the dollar since mid-July. That step, along with rate cuts and crackdowns on illegal channels for investment, may have stemmed inflows of so- called hot money, or speculative capital, and triggered outflows.

Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong, said US$10 billion to $20 billion of that money may be leaving each month.

That contrasts with the estimate of Michael Pettis, a finance professor at Peking University, that more than US$200 billion flooded in during the first half.The nation is at risk of "massive outflows" if expectations for yuan appreciation turn around, the central bank warned in a report released in June.

"Hot money inflows have petered out on slower yuan rises and a perceived economic slowdown," said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong. "The next issue is: how aggressive will the authorities be in easing rates? There's scope for them to be a lot more active."

Standard & Poor's cited the currency reserves and the nation's "strong fiscal position" when it upgraded China's long-term debt rating to A+, the fifth-highest grade, on July 31.

China is grappling with how best to manage the reserves, forecast by the International Monetary Fund to reach US$2.2 trillion by the end of December and US$2.7 trillion by the end of 2009. Diversifying away from U.S. Treasury bills has brought losses.

China Investment Corp., the nation's sovereign wealth fund, put money into Morgan Stanley and Blackstone Group LP before their stocks plunged. It also may have as much as US$5.4 billion frozen in a U.S. money-market account that suspended withdrawals last month.

Besides inflows of cash, the value of the reserves is affected by returns on investments and currency fluctuations.

The yuan remains Asia's best performer against the dollar this year, rising 7 percent. The nation's key one-year lending and deposit rates are 6.93 percent and 3.87 percent. Economic growth was 10.1 percent in the second quarter.

Money supply grew last month at the slowest pace in three years, the central bank said Tuesday.

M2, the broadest measure, increased 15.3 percent from a year earlier, compared with a 16 percent gain in August. The median estimate of 14 economists in a Bloomberg News survey was for a 16 percent increase.