* Says China will work to promote yuan as alternative (Adds comments, details)

By Zhou Xin and Simon Rabinovitch

BEIJING, Sept 3 (Reuters) - China on Friday offered a rareglimpse into its foreign exchange reserves, confirming that theyare overwhelmingly allocated in dollars, while a central bankersaid the mountain of cash could face depreciation risks.

The Chinese government's currency reserves, the world'slargest such stockpile at $2.45 trillion, are held roughly inline with what was described as the global average: 65 percent indollars, 26 percent in euros, 5 percent in pounds and 3 percentin yen.

The report in the China Securities Journal, an officialnewspaper, cited unnamed reserve managers.

The allocation of Chinese foreign exchange reserves isconsidered to be a state secret, but analysts have long estimatedthat about two-thirds are invested in dollar assets.

Separately, Hu Xiaolian, a vice governor with the People'sBank of China, warned that depreciation loomed as a risk forforeign exchange reserves held by developing counties.

"Once a reserve currency's value becomes unstable, there willbe quite large depreciation risks for assets," she wrote in anarticle that appeared in the latest issue of China Finance, aChinese-language magazine published under the central bank.

She reiterated China's long-standing discomfort with a globalfinancial system dominated by a single currency in the dollar.

"The outbreak and spread of the global financial crisis hashighlighted the inherent deficiencies and systemic risks in thecurrent international currency system," she said.

"A diversified international currency system will be moreconducive to international economic and financial stability," sheadded.

To that end, developing countries must speed up reform oftheir financial markets, and China would work to promote greatercross-border use of the yuan, she said.


There have been signs in recent months that Beijing hasstepped up the pace of diversification of its foreign exchangereserves away from dollar assets.

Chinese net buying of Japanese debt has surpassed 1.7trillion yen this year, far surpassing its record of 255.7billion yen in 2005. [ID:nTOE67802Z]

China has also raised holdings of South Korean bonds by 2.48trillion won ($2.11 billion) in the first seven months of thisyear from 1.87 trillion won at the end of last year. However,Chinese investors only started buying South Korean bonds in themiddle of 2009. [ID:nTOE67I05M]

At the same time, China has slightly cut back its vastholdings of U.S. Treasuries, from $894.8 billion at the start ofthe year to $843.7 billion in June, according to the most recentdata. China remains the biggest single holder of U.S. governmentdebt. [ID:nN16255591]

But analysts have also warned against reading too much intothe apparent shifts in the flow of cash from China. Like anyinvestor with commercial interests in mind, Beijing has shown areadiness to shift its strategy depending on what it sees as goodbuys at the time.

The China Securities Journal laid out the prospects for ashift back to the dollar in the near term.

"It is unlikely that China will increase purchases ofJapanese bonds in the coming months because the yen might weakenat any time," the newspaper said.

"China is very likely to increase purchases of U.S.Treasuries in September. The possibility for China to buy moreKorean bonds can't be ruled out," it added.

(Editing by Ken Wills)