The reference central parity rate of China's yuan was set higher for the sixth consecutive day on Tuesday while yuan forwards strengthened to a five-week high on speculation the central bank may lift interest rates further and allow faster currency gains to curb inflation.

The People's Bank of China, the central bank, set the reference rate for yuan trading at 6.6252 per dollar on Tuesday, the strongest level since Nov 12. Central bank adviser Li Daokui said more adjustments in borrowing costs and the reserve requirement ratio are "very necessary" in 2011, especially in the first half, the 21st Century Business Herald reported on Tuesday. The People's Bank of China on Saturday lifted the benchmark lending and deposit rates by 25 basis points, the second increase this year. Prudent monetary policy can help manage inflation expectations and prevent asset bubbles, Hu Xiaolian, vice-governor of the central bank, said in a statement on the central bank's website on Monday.

"Higher interest rates may attract more foreign funds and increase yuan appreciation pressure," said Guan Jianying, an analyst in Beijing at China Citic Bank Co. "But it will also depend on the performance of the stock and property markets."

Twelve-month non-deliverable forwards rose 0.1 percent to 6.4727 per dollar as of 9:30 am in Hong Kong, reflecting bets the currency will strengthen 2.4 percent from the spot rate of 6.6274, according to data compiled by Bloomberg. The contracts touched 6.4700, the strongest level since Nov 23.

The yuan, which has already risen 3 percent since a two-year peg to the US currency was scrapped on June 19, will climb 3 percent to 5 percent in 2011 as the central bank lifts rates two to three times, and China should keep the yuan basically stable at a reasonable and balanced level, and improve the yuan's exchange-rate formation mechanism, Hu from the central bank added in her statement on Monday.

Consumer prices climbed 5.1 percent from a year earlier in November, the fastest pace in 28 months, the statistics bureau said on Dec 11. The central bank will lift its benchmark one-year lending rate to 6.25 percent by the end of 2011, according to median estimates of economists surveyed by Bloomberg News.