Report: China Wants Strong Dollar

Zhou Xiaochuan, governor of the People's Bank of China, made the comment to U.S. Treasury Secretary Henry Paulson at a conference in South Africa, the Xinhua News Agency said.

"Zhou said he told Paulson China hopes to see a strong dollar," Xinhua reported. It said Zhou was responding to Paulson's prediction of a long-term recovery of the weakening dollar, which fell to another record low against the euro Thursday.

Zhou's comments put "weight behind the slumping currency," Xinhua said.

The U.S. dollar has been falling against the euro, yen and other major currencies amid fears for the health of the American economy, stoked by the subprime mortgage crisis. Concerns about the United States' huge trade deficit, which leaves more dollars in the hands of foreigners, also is weighing on the currency.

On Thursday, the dollar rebounded slightly against the yen, inching back up to 108.70 yen after touching a 2 1/2-year low of 108.25 yen overnight. But the euro continued to rise to new highs, climbing as high as $1.4873.

China keeps a large share of its $1.43 trillion in reserves in dollar-denominated assets such as U.S. Treasuries, which means a falling dollar erodes the value of its holdings. Financial markets are watching to see whether Beijing shifts to a stronger currency such as euros.

Zhou said that only when the dollar "devalues drastically can it be called weak, the scenario of which is likely to bring uncertainty to the world economy, to the reluctance of all parties concerned," Xinhua reported.

Zhou and Paulson were attending a meeting in South Africa of the G20, which groups together the world's 20 biggest economies.