China’s foreign exchange reserves rose for a fifth straight month in March, with the increase exceeding expectations, as growing optimism about the prospects for a US-China trade deal offset concerns over slowing economic growth. Chinese reserves, the world’s largest, rose by nearly US$9 billion in the month to US$3.099 trillion, its highest since August, according to central bank figures released on Sunday. Economists polled by Reuters had expected the reserves to rise by US$5 billion to US$3.095 trillion. “The US dollar index strengthened slightly in March due to the China-US trade talks, the revised policy outlooks of central banks in Europe and America, as well as uncertainty over Brexit … China’s forex reserves expanded marginally,” China’s State Administration of Foreign Exchange said after the data release. The forex regulator said also that with the economy expected to maintain reasonable growth and improved flexibility in the yuan exchange rate, China’s forex reserves will remain stable. The yuan fell 5.3 per cent against the dollar last year as trade relations with the United States deteriorated and the Chinese economy slowed. But it has rebounded more than 2 per cent so far in 2019 on hopes Washington and Beijing will reach an agreement to end their bruising trade war. China has made a clear effort to keep yuan exchange rate stable In March, the yuan fell 0.3 per cent against the dollar due to the strength of the latter, which rose 1 per cent against a basket of major currencies. US and Chinese negotiators wrapped up their latest round of trade talks on Friday and were expected to resume discussions this week to try to secure a pact that would end a tit-for-tat tariff battle that has roiled global markets. But the outlook for the dollar is expected to remain soft after the Federal Reserve last month abandoned projections for further interest rate increase this year on signs of an economic slowdown in the US. Assuming continued dollar weakness and progress in trade talks, the yuan is likely to hold on to its recent gains and appreciate modestly over the coming year, according to analysts in a new Reuters poll. It last traded at about 6.72 to the dollar. US President Donald Trump said on Thursday that a trade deal could be announced in the next four weeks. But the US trade office said on Saturday that significant work remains to be done. Discussions are set to resume this week. Meanwhile, the value of China’s gold reserves fell to US$78.525 billion from US$79.498 billion at the end of February. For much of last year, global investors worried about the risk of capital flight from China as the economy cooled, and debated how much yuan weakness Beijing would allow, though strict capital controls kept outflows in check. More recently, with the dollar on the back foot, attention has turned to how much upwards pressure Chinese policymakers will be comfortable with, as foreign inflows into financial markets look set to boost the currency. Chinese stocks have rallied more than 20 per cent this year on trade deal hopes, while some Chinese bonds were added on April 1 to the Bloomberg Barclays Global Aggregate Index, one of the most widely tracked fixed income benchmarks. UBS Asset Management estimated this phase of bond inclusion will introduce US$250 billion to US$500 billion of passive money alone, and possibly trillions of dollars if active money is counted. The tide may also be turning for China’s economy, with business surveys showing March manufacturing activity returned to growth, suggesting months of government stimulus measures are starting to take hold. If sustained, improving economic data could prompt markets to scale back expectations of further policy easing, though analysts still expect several more cuts in banks’ reserve requirements this year, possibly as soon as next week.