While financial markets may not react dramatically to the Group of Seven's charge to China to let its yuan currency rise, the events of the weekend will likely further erode faith in the U.S. dollar.

For its part, China stressed it has no intention of significantly revaluing the yuan -- at least not soon. But the dollar will likely keep sliding against currencies of other emerging Asian nations.

Officials from G7 wealthy nations escalated pressure on Beijing to free up the yuan by singling out China in its post-meeting statement on Friday as one of the surplus-running emerging countries that need more currency flexibility.

The focus on growing imbalances in trade and investment flows made exchange rates the burning subject of weekend meetings of the G7 and the International Monetary Fund.

But analysts said the G7's reference to China was partly for political reasons rather than strictly economic ones and would carry as little weight with China on the issue as U.S. protectionist legislation would.

It's a significant statement. But don't expect China to respond, said Greg Anderson, currency strategist with ABN AMRO in Chicago.

That message came across loud and clear from China's President Hu Jintao on Thursday and central bank governor Zhou Xiaochuan on Saturday.

The G7 communique was sandwiched between statements from Jintao and Zhou that underscored stability and autonomy in setting the country's exchange rate.

Zhou granted that reform could happen a little bit faster but stressed what he called the philosophy of gradualism.

He also said that while he welcomed the IMF's efforts to become more of a global economic arbiter, the fund should not meddle in currency policy.

Each country is entitled to choose an exchange-rate system consistent with its own economic development, he told the IMF's steering committee.

Economist James Glassman said the choice is up to China.

Ultimately China has to make a decision on its own. China holds all the cards, said Glassman, chief U.S. economist with JPMorgan Chase in New York.

RISING ASIA

Glassman said the G7 probably included China in an effort to diffuse protectionist sentiment in the U.S. Congress. There are a number of bills pending on Capitol Hill that threaten trade penalties if China does not more quickly toward a freely floating currency.

In July, China revalued the yuan by 2.1 percent against the dollar and tied it to a basket of currencies that includes the euro and yen. Since then, the yuan has strengthened only around 1 percent against the dollar, frustrating some U.S. politicians and industry groups who argue China's cheap currency gives it an unfair trade advantage.

The yuan has however risen more against other currencies. Raghuram Rajan, chief economist with the IMF, estimated it has climbed 8 percent to 9 percent over the past year against a basket of other major currencies.

The dollar was at 8.0170 yuan on Friday.

Recent statements from the U.S. Treasury and Beijing reveal little shared ground between the two.

It's like they're talking past each other, said Marc Chandler, head of global currency strategy with Brown Brothers Harriman, adding that Friday's statement did not constitute an outright sell signal for traders.

Even before the weekend, the dollar had been under pressure as traders anticipate an eventual end to the Federal Reserve's nearly two-year interest-rate raising campaign.

On Friday, the greenback received another blow when the Swedish central bank said it planned to diversify some of its reserves into euros, joining a recent roster of finance officials from Russia and Middle Eastern countries suggesting they would shift some of their reserves out of dollars.

Russian Finance Minister Alexei Kudrin said later on Friday he did not understand the dollar's vaunted status as the reserve currency of the world given its volatility.

Chandler, whose bank is one of the largest U.S. custodians of financial assets, said institutional investors have been pushing the dollar steadily lower against the currencies of emerging Asian countries, including Hong Kong, Indonesia, Malaysia, South Korea and Taiwan.

If anything, the drumbeat of worrying news in recent days will only exacerbate already well-established trends.

Last week, the dollar dropped to its lowest point in 8-1/2 years against the South Korean won. Against the yen, it dipped to three-week lows on Friday and some analysts expect further declines.

Robert Rennie, a currency strategist with Westpac Bank in Sydney, recommended investors bet on the yen strengthening against the dollar by year-end on a strictly valuation basis.

While other Asian currencies have only recently heeded the G7 call for greater flexibility, it is clearly the case that the yen has spent the last year plus heading in the opposite direction from the rest of Asia, he said in a note to clients. Given where the Japanese economy is right now, this is clearly inconsistent with fundamentals.

China Jpmorgan chase