China will manage its $3.2 trillion of foreign currency reserves more creatively to ensure effective results, its central bank said on Monday, as it vowed to work harder to free the country's tightly controlled financial markets.

In a wide-ranging statement highlighting its goals for 2012, the People's Bank of China (PBoC) promised to reduce state control over China's interest rates and currency markets to allow market forces to have a bigger play.

Continued efforts will be made to manage China's reserve assets with new ideas and in a more effective manner, the central bank said before its annual press conference on Monday.

Steady progress will be made to promote capital account convertibility, the statement said. The PBoC will steadily advance reforms for market-based interest rates and renminbi (RMB) exchange rate.

Beijing wants the yuan, also known as the renminbi, to be basically convertible by 2015 when it will trade with fewer government restrictions, in the hope that it lays the ground for China's ambitions to be a global financial centre by 2020.

But many analysts argue much still needs to be done, saying China needs to free its interest rate market before it frees its currency. Some are skeptical that China has the political will to push through rate reforms that may hurt the health of its giant state-owned banks.

China de-pegged the yuan from the dollar in a landmark move in July 2005 and it has since appreciated some 30 percent against the U.S. currency, though some critics in the West say Beijing is still keeping too tight a grip on the yuan in order to aid the country's exporters.

China owns the world's biggest foreign exchange reserves and is struggling to properly manage the mountain of cash to generate adequate returns.

The country's sovereign wealth fund, China Investment Corp , drew public rebuke after it lost money on high-profile investments in U.S. investment bank Morgan Stanley and private equity firm Blackstone Group.

It will also expand the variety of products and coverage for cross-border RMB businesses in a steady manner to meet market demands, the central bank said.

Efforts will be made to improve RMB settlement business for cross-border trade and investment transactions.

The statement gave few clues about the direction of China's monetary policy, except to say policy will be fine-tuned at the right time and that the central bank would use all options available to manage economic growth and price pressures.

Policy tools listed by the central bank included interest rates, the yuan, open market operations and the reserve requirement ratio for banks.

Central Bank Governor Zhou Xiaochuan and Deputy Governor Yi Gang were expected to shed light on the future of China's monetary policy during a press conference.

Many investors expect Beijing to further relax policy by lowering banks' reserve requirement ratio as the world's No. 2 economy cools and price pressures wanes.

Expectations of a policy response from Beijing were entrenched on Friday by the first major flurry of hard economic data of the year, which revealed an easing in the pace of industrial output, inflation, fixed asset investment and retail sales.

Loan growth data cemented the view that monetary policy would be relaxed further to support demand for credit and ensure policymakers achieve their desired outcome of an economy slowing sufficiently to stop speculative investment, while creating enough jobs to maintain social stability.

(Writing by Koh Gui Qing; Editing by Ken Wills & Kim Coghill)

China