BANK of China Ltd, the only yuan clearing bank in Hong Kong, said it raised transaction costs for conversions between the city's currency and the yuan more than sevenfold.

The bank's Hong Kong branch widened the spread between the cost of buying and selling Hong Kong dollars for the Chinese yuan to 0.75 percentage point from 0.10 point on Monday, said Clarina Man, spokeswoman at the bank. Hong Kong has stuck with a peg of about HK$7.8 to the US dollar that began in 1983, eroding the value of its residents' savings as the greenback slumped.

The Chinese yuan has risen about 19 percent against the Hong Kong dollar since the People's Bank of China scrapped a US dollar link in July 2005, allowing the yuan to reflect the prospects for expansion in the world's fastest-growing economy. China's foreign-exchange reserves rose to a record US$1.68 trillion at the end of March, fueling concern inflows of cash will hamper the government's efforts to damp inflation close to the fastest in 11 years, Bloomberg News said

"This is clearly a transaction tax on the conversion of Hong Kong dollars into yuan," said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. "In concert with the significant slowdown in the pace of yuan appreciation, it reveals a real official concern with hot money inflows and speculative demand for the yuan."

The yuan was little changed at 6.9871, compared with 6.9873 on Tuesday, according to the China Foreign Exchange Trade System. The Chinese yuan appreciation has slowed since the start of April, after gaining 4.2 percent in the first quarter. The yuan bought HK$1.1159, versus HK$1 in January last year.

The Hong Kong branch of the BOC raised its interbank fees on the same day that the China Foreign Exchange Trading System, the country's trading platform, increased transaction fees, according to spokeswoman Man. She wouldn't give details.

Most Hong Kong lenders said they would pass on the additional cost of converting the currency to customers, according to Hong Kong's Singtao Daily newspaper, which reported the fee rise yesterday.

"We have noted that the clearing bank of the renminbi yuan business scheme has issued a notice to participating banks with the widening spread," said a Hong Kong Monetary Authority spokesman, who asked not to be identified. He declined to elaborate.