China should limit yuan falls to 5 percent in 2017 - former c.bank adviser

BEIJING (Reuters) - China ought to limit the yuan's falls against the dollar to 5 percent in 2017 by strictly controlling capital outflows, a former policy adviser to the People's Bank of China said in remarks published on Tuesday.

"We should prevent the yuan from depreciating by more than 5 percent against the dollar and try hard to keep it stable. It will be a tough battle next year," the Time Weekly quoted Li Daokui, a former member of the PBOC's monetary policy committee, as saying.

That meant the yuan should not weaken past the 7.35 per dollar level, Li said, warning that the consequences of breaking the level would be "unthinkable".

The yuan has come under intense pressure in the past two months, tumbling to 8-1/2-year lows in November on fears of being swept up by a rush of capital out of emerging markets amid surging U.S. treasury yields.

The allure of higher U.S. yields has seen the dollar rallying hard, particularly as Donald Trump's surprise U.S. election victory in November spurred bets on fiscally expansionary policies and higher growth.

Currency traders have remained jittery since Trump's win as investors worried that capital outflows and a weakening yuan could derail an economy that has only just started to stabilise.

Authorities should strictly control capital outflows to help slow the yuan's depreciation, Li said.

Beijing has announced a string of measures recently to tighten controls on money moving out of the country, such as tighter approvals for foreign currency transfers.[nL4N1DU2AZ]

The yuan has fallen about 6.6 percent against the dollar so far this year.

(Reporting by Yawen Chen and Kevin Yao; Editing by Shri Navaratnam)