1st LD-Writethru: China's forex reserves drop smaller than expected

China's foreign exchange reserves dropped by 99.5 billion U.S. dollars from December to 3.23 trillion U.S. dollars at the end of January, the central bank said Sunday.

The decrease was milder than a month-on-month decline of 108 billion dollars registered in December, which was the sharpest monthly fall on record, data from the People's Bank of China (PBOC) showed.

The drop in January was below market expectations of a 120 billion-dollar fall, suggesting that the worst fears of cascading capital flight have not come to pass, said Tom Orlik, chief Asia economist at Bloomberg.

China's forex reserves shrank by 512.7 billion dollars in 2015 as the country's currency was under increasing selling pressure after a revamp of the forex mechanism in August to make the currency's rate more market-based.

Yuan softening was also partly due to expectations of higher U.S. interest rates and concerns over a slower Chinese economy, which led to capital flows outbound for higher returns.

However, the latest reserve data indicated the PBOC will be able to resist pressure for a disorderly depreciation, Orlik noted.

"The stock of reserves remains ample, enough to cover [capital] outflows at the current rate for more than two and a half years," Orlik said.

Despite the contraction, China's forex reserves remain the world's largest.

The country still has abundant forex reserves and a current account surplus, making it capable of withstanding the impact of cross-border capital flows, the State Administration of Foreign Exchange said Thursday. Endi