By Belinda Cao and Kim Kyoungwha Oct. 9 (Bloomberg) -- The yuan fell against the dollar after China cut interest rates for the second time in three weeks to shield the world's fourth-largest economy from global financial turmoil. The drop in the yuan, Asia's best performer this year, also reflects dollar gains against other major currencies after the Federal Reserve, European Central Bank and Bank of England lowered borrowing costs yesterday to counter the worst financial crisis since the Great Depression. China has managed the yuan's exchange rate against a basket of currencies, including the euro, yen and pound, since a dollar peg ended in 2005. ``The yuan is under pressure as China has more room to cut rates than the U.S. and Europe,'' said Shi Lei, a Beijing-based analyst at Bank of China Ltd., the country's largest foreign- currency trader. ``I hear foreign companies in China are buying dollars and remitting them out of China.'' The currency traded at 6.8303 a dollar in Shanghai as of 10:05 a.m., from 6.8171 yesterday, according to the China Foreign Exchange Trade System. The yuan is allowed to trade by up to 0.5 percent against the dollar either side of the so- called central parity rate, which was set at 6.8310 today. The People's Bank of China said it would lower the key one- year lending rate by 27 basis points to 6.93 percent, and the one-year deposit rate by the same amount to 3.87 percent, according to a statement on its Web site. Premier Wen Jiabao said this week that China's financial system is safe and the economy, the world's fourth largest, may be able to maintain rapid growth. Gross domestic product grew 10.1 percent from a year earlier in the second quarter, more than four times the pace of expansion in the U.S., Japan and Germany, the three largest economies. To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.netBelinda Cao in Beijing at lcao4@bloomberg.net.

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