2nd LD-Writethru: China's forex reserves end falling streak

China's foreign exchange reserves unexpectedly increased in March, ending a falling streak since November, central bank data showed on Thursday.

Foreign exchange reserves rose by 10.28 billion U.S. dollars from the previous month to top 3.21 trillion dollars in March, according to data from the People's Bank of China.

Minsheng Securities analysts attributed the increase to a steady yuan exchange rate as the U.S. interest rate hike worries eased while the domestic economy improved.

March's data further eased fears of a downward spiral of capital outflows and yuan weakness, said Tom Orlik, chief Asia economist at Bloomberg.

The narrow spread between the offshore and onshore yuan and between the spot and forward price suggest depreciation expectations have been reduced. The consensus forecast is for the yuan to end the year at 6.7 to the U.S. dollar, down from expectations of a 6.8 finish in mid-March, Orlik said in a report to clients.

Although the foreign exchange reserve rose for the first time in five months, analysts said it might not be the turning point for capital outflows.

Capital outflow may return if the dollar strengthens again as the Federal Reserve raises the interest rate later this year, Sinolink Securities analyst Xu Yang said.

On Thursday, the central bank also released foreign exchange reserves denominated in Special Drawing Rights (SDR) for the first time. The hoard was at 2.28 trillion SDRs at the end of March.

China's gold reserves stood at 71.49 billion U.S. dollars at the end of March, up from February's 71.01 billion U.S. dollars, according to the central bank data. Endi