By JEAN YUNG SHANGHAI—The yuan fell to its weakest permitted level against the U.S. dollar for a second straight day Friday, despite yet another record-high fixing by the central bank, as investors continued to scramble for the safety of the greenback amid continued concerns about the health of China's economy and the euro-zone debt crisis. The yuan remained under selling pressure, bucking a rally in other Asian currencies, due also to sustained arbitrage interest between the yuan in Shanghai and its weaker counterpart in Hong Kong, traders said. Shortly after trading began, the dollar rose to 6.3481 yuan, the highest level it is allowed to trade at for the session. The People's Bank of China prohibits the yuan from rising or falling against the dollar by more than 0.5% from the dollar/yuan central parity, a daily guidepost for the currency pair, which was set at 6.3165 Friday. The central bank set the dollar lower against the yuan Friday compared with Thursday, likely influenced by the euro's rebound versus the dollar. Thursday's dollar/yuan central parity of 6.3198 was the previous low since a landmark currency revaluation in 2005. Given the severe dollar supply crunch, traders said spot trading had nearly ground to a halt as they told clients to hold off on buying dollars for now, while banks wait to see if the PBOC will step in to provide much needed liquidity in the market. "But the PBOC may also be reluctant to inject dollars onshore because that would only widen the price difference (between the yuan in Shanghai and in Hong Kong) and attract more arbitragers," a foreign bank trader in Shanghai said. As of midday, the dollar was still at its upside limit against the yuan. But even at this level, the dollar was weaker compared with 6.3514 yuan late Thursday. The yuan has repeatedly hit its lower trading limit since late September even as the central bank has attempted to force it higher via its daily fixings, partly out of concerns about excessive capital outflows, traders said. However, worries over China's slowing economy and the preference for risk aversion appeared to remain fairly persistent in China, they added. As part of Beijing's push to transform the yuan into a global currency, China allows the yuan to float freely in Hong Kong. Since late September, the offshore yuan has suffered from a global rush to safehaven currencies such as the dollar. The dollar-yuan exchange rate offshore was at 6.3935. Traders said the PBOC may let the yuan's fixing fall back slightly next week, after the conclusion of the Group of 20 industrialized and developing nations summit in France. "It's typical for China to set record-high yuan fixings ahead of and during important international meetings as a sign of goodwill. When the spotlight is off, the PBOC usually will let the yuan consolidate its gains," a trader at an Asian bank in Shanghai said.

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