In remarks that gave the clearest sign so far of the degree of currency movement China is planning, Guo Shuqing, director of the State Administration of Foreign Exchange, ruled out allowing the yuan to freely float.

"Sharp appreciation of the yuan is unlikely," Guo told reporters on the sidelines of a parliamentary meeting.

"It is impossible for us to have a free-floating exchange rate," he said. "A free-floating exchange rate will bring serious consequences."

But Guo said China had done much groundwork for reform of the exchange rate system, which now holds the yuan in a tiny range of 8.276 to 8.28 per dollar.

Guo did not elaborate on how or when China would reform the currency but his comments, made on the sidelines of an annual meeting of a parliamentary advisory body of which he is a member, were the strongest indication so far that the first step would be small.

Earlier, state media quoted Guo as saying China planned to gradually make the exchange rate more flexible, a stance long held by Beijing as it has fended off demands from the United States and other countries to let the yuan rise in value.