The tendency was showcased in a ranking of top currency traders in the first five months of 2006 contained in a document issued by the China Foreign Exchange Trade System, the interbank market, to its members, the newspaper said.

"Most domestic banks are sticking to their tactics of spot trading in the face of the yuan's strengthening, but foreign banks are making an all-out effort to seek arbitrage profits in forward, swap and spot trading," the newspaper said.

Some banks, taking advantage of their expertise in currency derivatives, were also seeking arbitrage gains between domestic yuan trading and offshore non-deliverable forwards (NDFs), the newspaper said. It did not give details.

Thirteen foreign lenders were among the top 30 banks in spot trading of the yuan against foreign currencies, with Citibank ranking the second only after Bank of China , the country's largest foreign-exchange bank, the newspaper said.

In the first five months of 2005, only one foreign bank was among the top 30 list, the newspaper said.

China has moved to shore up the foreign exchange market, such as by introducing yuan forwards and swaps, since the 2.1 percent revaluation of the yuan on July 21, 2005 and simultaneous shift from a dollar peg to a managed float.

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 rate regime was introduced.

The yuan has now appreciated a further 1.39 percent since the revaluation last year.

Some foreign banks were trying use forward currency trading to obtain more yuan liquidity to meet a growing demand for local currency loans from their clients, the newspaper said.

But the State Administration of Foreign Exchange had recently changed its rules to limit such trading, the newspaper said.