Rate cuts will hammer dollar: Chinese official

BEIJING (AP) -- Further cuts in U.S. interest rates would have a "harmful effect" on the dollar and the international finance system, a Chinese finance official wrote in a commentary Thursday in an official newspaper.

The dollar's fall against many currencies has prompted investors to sell dollar-denominated assets, Hu Xiaolian, director of the State Administration of Foreign Exchange, wrote in the Financial News, a newspaper published by the central bank.

"If the (U.S.) federal funds rate continues to fall, this will certainly have a harmful effect on the U.S. dollar exchange rate and the international currency system," Hu wrote.

Financial markets closely watch official Chinese comments on the dollar because Beijing keeps a large portion of its $1.4 trillion in reserves in U.S. Treasury securities and any change in China's investment strategy could affect exchange rates.

Despite his warning, Hu wrote, "the U.S. dollar's dominant position in international currency markets is unlikely to change in the near term."

The U.S. Federal Reserve has lowered its federal funds rate, the interest that banks charge each other for overnight loans, to 4.25 percent, a full percentage point lower than it was in September, to ease a credit crunch in the U.S. financial system.

Chinese officials have said that cutting the rate could encourage investors to move money to Asia or elsewhere in search of better returns, which could depress the dollar