China's currency, the yuan, was set to trade at 6.992 yuan against the US dollar on Thursday, breaching the 7-yuan mark for the first time since the government unpegged it from the dollar in 2005.

Following an overnight fall of the dollar, the central parity rate of the yuan, or renminbi, gained 105 basis points to 6.992 yuan against the dollar on Thursday, according to the China Foreign Exchange Trading System.

Shen Minggao, an economist at Citigroup in Beijing, said that like many economists, he was not surprised to see the yuan to break the 7-yuan mark.

"It was quite natural," he said, citing the dollar's fall against other major currencies, especially the euro, since the second half of last year along with an unfolding US credit crisis plaguing the US economy.

The yuan has gained 4.47 percent this year based on Thursday's trading price, or 15.99 percent since the new currency regime was imposed in July 2005.

The yuan's gain amounted to 18.27 percent from 8.2765 yuan against the dollar before the new currency regime was adopted.

Zhuang Jian, a senior economist with the Asian Development Bank mission in China, also believed a weaker US dollar was the most direct factor behind the accelerated appreciation of the yuan.

The value of Chinese currency stayed above eight to the dollar for many years before the 2005 regime reform. The yuan broke the 8-yuan threshold on May 15, 2006.

Zhuang said the breakthrough was an indication of the country's efforts to shift from a heavy reliance on exports and investment as well as to go after a more balanced trade structure.

The quickened pace had prompted many overseas banks to raise their forecast of the yuan's 2008 annual gain against the dollar. Last month the Standard Chartered Bank revised its prediction from 9 percent to 15 percent.

However, economists agreed that the fast pace registered in the first quarter would probably not continue throughout the year.

"We do expect continued appreciation going forward, but not quite at the breakneck pace of the first quarter," the Switzerland-based UBS Investment Bank said in a report released on Wednesday.

The bank said the "stabilization of the US dollar in 2008" and "greater signs of stress in the export sector" due to the US and global slowing would help moderate the pace.

Some economists even expected that the yuan may not unilaterally rise against the dollar for the rest of the year.

Shen Minggao said the appreciation pressure on the yuan would ease and the yuan may even depreciate against the dollar, once the dollar became stronger.

Tan Yaling, a research analyst with the Bank of China, also expected the dollar to rebound in the second half, and said the 2008 US presidential election could be a plus to making the dollar stronger.

She continued to anticipate that the yuan would continue to appreciate in the first half, but would report falls against the dollar from time to time in the second half as the dollar rebounded.