RTTNews - China's foreign exchange reserves surged in June, reflecting an increase in confidence among foreign investors about the economy's recovery, an official report showed Wednesday.

Data released by the People's Bank of China showed that the foreign exchange reserves stood at US$ 2.131 trillion at the end of June, coming in higher than economists' expectations of US$ 2.021 trillion. China is only country to have reserves totaling more than US$ 2 trillion.

The central bank said the reserves increased by US$ 42.1 billion in June compared to a US$80.6 billion in May. Meanwhile, in the second quarter, the foreign exchange reserves climbed US$177.85 billion compared to a US$7.7 billion rise in the first quarter.

The surge in foreign reserves came despite a decline in the trade surplus. Earlier in the month, data released by the General Administration of Customs showed that the trade surplus stood at US$8.25 billion in June, narrowing from a surplus of US$13.4 billion in May.

Exports were down for the eighth consecutive month, falling 21.4% on a yearly basis in June to US$95.41 billion. At the same time, imports dropped 13.2% to US$87.16 billion. On a monthly basis, however, exports were up 7.5%, and imports climbed 15.6%.

Further, the Commerce Ministry said Wednesday that the foreign direct investments into China dropped 6.8% year-on-year in June to US$8.96 billion. This was the ninth consecutive month of fall, following the 17.8% drop in May, the Ministry said.

Meanwhile, the country's broadest measure of money supply, the M2 grew 28.46% year-on-year in June, after rising 25.7% in the preceding month. Economists expected a rise of 26.7%. Further, the M1 money supply was up 24.79% on a yearly basis in June.

Earlier last month, China's central bank governor, in a meeting held at Basel, Switzerland, said the country's foreign exchange reserve policy was always quite stable and consistent, for the purpose of liquidity, safety and returns.

Meanwhile , on June 26, China renewed it call for a new global currency reserve to replace the U.S dollar, saying excessive reliance on the dollar has added on to the risks and the crisis.

Russia has also supported China's view, and called for a currency agreement that would allow traders to settle deals in their own currencies.

A central bank report from China said the Special Drawing Rights, the unit of currency used in the IMF, should be given a larger role to play.

In June, the World Bank also raised its growth forecast for China, although it said it did not expect a high single digit rebound until the world recovers convincingly. In its quarterly update, the World Bank raised China's 2009 growth forecast to 7.2% from 6.5% estimated in March. In the first quarter, the economy grew 6.1%, the slowest pace since data began in 1992. The statistical office will officially release the second quarter GDP figures on Wednesday at 22.00 pm ET. Economists are looking for a growth of 7.8%.

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