Most banks are allowed to run a net short or long foreign currency position in spot dollar-yuan markets, within defined limits. The directive came from a meeting the People's Bank of China (PBOC) held with a few commercial banks earlier this week, the sources said. The sources, who received the directive, said banks were also told to encourage their clients to hold off on dollar purchases. Earlier this month, it announced it would increase the supply of dollars by lowering the amount of foreign exchange that banks must set aside. Sources told Reuters last month that China's currency regulators asked some banks to reduce or postpone their purchases of U.S. dollars in order to slow the yuan's depreciation.

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Persons: Dado Ruvic, Banks, Sid Mathur, Mathur, Shri Navaratnam Organizations: REUTERS, Rights, People's Bank of China, Reuters, BNP Paribas, Shanghai, Thomson Locations: China's, United States, China, Asia, Pacific, . China