BEIJING, March. 7 -- A sharp appreciation of China's yuan was unlikely and the currency would be kept in a small range as the country gradually implemented a more flexible exchange rate, China's foreign exchange chief said Saturday.

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 said.

"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 U.S. dollar.

Guo did not elaborate on how or when China would reform the currency. But his comments were the strongest indication so far that the first step would be small.

"As China is a developing country, the floating range for the yuan exchange rate will definitely be relatively small," Guo was quoted as saying by the China Securities Journal.

Many analysts say they expect authorities to first slightly widen the slim trading band or repeg the yuan to a basket of currencies instead of just the U.S. dollar.

Guo, in comments first carried in domestic media that he later confirmed to reporters, also said short-term currency changes would not affect the structure of China's foreign exchange reserves.

(Shenzhen Daily/Agencies)