SHANGHAI, Aug. 14 -- CHINA has scrapped limits on the amount of foreign-currency earnings companies can hold, in a move to trim the growth of the country's mounting forex reserves.

"The new policy will enhance domestic companies' convenience in using foreign exchange," the State Administration of Foreign Exchange said yesterday in a statement on its Website, citing the new rules.

"It will help companies strengthen management of their funds and help mitigate international balances," it said.

Previously, companies could hold foreign currencies equivalent to 80 percent of their previous financial year's current-account income or 50 percent of spending. They were required to exchange all the rest.

The new move is part of the government's long-standing decision to gradually free its forex flow.

Stephen Green, a Standard Chartered Bank senior economist, said the move is a step forward in the effort.

"Against the backdrop of yuan appreciation, companies are under incentives to convert forex into yuan quickly rather than hold overseas currencies (and see them depreciate)," Green said.

The Chinese currency has gained 9.3 percent since July 2005, when China dropped its decade-long peg to the US dollar.

China's forex reserves topped US$1.33 trillion - the world's biggest - at the end of June.

China's growing trade surplus has led to mounting forex reserves and left the financial system flooded with cash.

The central bank has responded with austerity measures, including interest rate hikes to soak up liquidity and avoid an overheated economy driven by excessive credit.

China's economy grew 11.9 percent in the second quarter, up from 11.1 percent in the first three months. The central bank has raised interest rates three times and asked commercial banks to put aside more yuan reserves six times this year to curb lending and inflation.

Authorities are taking steps to trim foreign-exchange reserves, including increasing individuals' forex quotas, allowing institutional players to invest overseas and further freeing the current account.

China has more than doubled individuals' forex quotas from US$20,000 to US$50,000 since February 1.