China said on Monday it would allow trading between the yuan and the British pound from Aug. 1 on its foreign exchange market, in the latest step to reform the currency system.

China is speeding up market-based reforms to prepare for greater currency flexibility after revaluing the yuan by 2.1 percent to the dollar and abandoning a decade-old dollar peg for a managed float a year ago.

"Approved by the State Administration of Foreign Exchange, the China Foreign Exchange Trade System will introduce spot, forward and swap trading between the yuan and the pound," the interbank foreign exchange market said in a statement posted on the official Web site (Chinamoney.com.cn).

The country's decade-old interbank market currently trades four currency pairs between the yuan and foreign currencies -- the euro, yen, Hong Kong dollar and U.S. dollar

That was on top of trading in eight foreign currency pairs.

The pound would be subject to a daily trading band of 3 percent from its mid-point against the yuan, the statement said. That would be in line with the range limiting the yuan's daily trading movements against other non-dollar currencies.

The daily yuan/pound mid-point rate would be calculated on the basis of the yuan's mid-point exchange rate against the U.S. dollar and the spot exchange rate between sterling and the dollar on the international market, it said.

The People's Bank of China, the central bank, set the mid-point of the yuan's exchange rate against the dollar on Monday at a post-revaluation high of 7.9924.

The yuan may rise or fall 0.3 percent from its mid-point each day, but it has moved only a fraction of that range in most trading sessions since the floating regime was introduced, allowing the yuan to appreciate 1.47 percent since then.

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