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Beijing - China announced Friday it would widen the trading band of its currency and raise interest rates, apparently to counter foreign criticism of its exchange rate and rein in its runaway economy.

 The moves came ahead of a high-level meeting in Washington next week during which China and the United States are expected to discuss major thorns in their trading relationship, of which the currency rate is the biggest.

 The interest rate hikes, meanwhile, were widely anticipated as China seeks to cool an economy that grew at a blistering 11.1 per cent rate in the first quarter of the year.

 The currency trading range will be broadened to 0.5 per cent either side of a daily reference rate against the US dollar from the previous 0.3 per cent, with effect from Monday.

 The currency closed at 7.668 to the dollar on Friday, the latest in a series of recent record highs amid upward pressure on the yuan.

 "This is directly related to the meeting next week," said Chen Xindong, an economist with BNP Paribas in Beijing.

 US Treasury secretary Henry Paulson will meet a Chinese delegation led by Vice Premier Wu Yi, one of China's most senior leaders, for the twice-yearly Strategic Economic Dialogue in the US capital next week.

 The move also comes as the finance ministers of the world's richest countries gather in Germany for the annual Group of Eight meeting.

 The central bank also said beginning Saturday it would raise the benchmark for one-year lending rates by 0.18 per centage point to 6.57 per cent and hike the deposit rate by 0.27 per centage point to 3.06 per cent.

 The move was intended to ensure "reasonable growth" in investments, and keep prices stable, the People's Bank of China said in a statement on its website.

 Economists, however, said they did not believe either move would have a significant impact.

 "The widening of the band is a gesture by the Chinese government signalling that is willing to make the yuan more flexible. But widening it by that much will not do much," Chen said.

 "To me this is a gesture, it does not mean the yuan will appreciate by a large amount."

 Andy Xie, an independent economist in Shanghai formerly with Morgan Stanley, said the currency remains government controlled.

 "It's a step in the right direction but still too small. It's still not a freely floating currency," he said.

 The interest rate hike was China's fourth since April of 2006, signalling its determination to cool a liquidity-driven investment boom and a skyrocketing stock market.

 But Xie said the size of the rate hike was insignificant given the rate at which the economy and stock market were surging.

 "This is really scratching the surface. It's more symbolic than anything," he said.

 "It may cause a slight correction in stocks but after a short while the bubble will come right back again."

 China announced the moves together in an apparent bid to maximise their impact, said Sebastien Barbe, a Hong Kong-based economist with Calyon, an investment arm of French investment bank Credit Agricole.

 "It's worth noticing that China has announced all three measures at the same time. That's never happened before. China is aiming for a major coup in terms of communication," he said.

 The central bank also said that it would hike the required reserve ratio by 0.5 per centage point to 11.5 per cent with effect from June 5.

 The exchange rate change could lead to a faster appreciation of the yuan, given the upward pressure already on the Chinese currency.

 The exchange rate is the main source of trade friction between the United States and China. Washington accuses the Chinese government of keeping the currency artificially low to give its exporters an unfair advantage.

 China revalued the currency by 2.1 per cent in July 2005 and since then has allowed it to gain about five per cent more.

Agence France Presse