The dollar fell, particularly against the yen, after reports emerged that China plans to sell a small amount of foreign currency reserves. Analysts cited a report that emerged this afternoon quoting People's Bank of China governor Zhou Xiaochuan as saying that China will sell a small amount of reserves and not accumulate any more. "Comments from Chinese Central Bank official Zhou about reserves sent the greenback into offered mode," said Colin Clarkson at Thomson IFR Markets. A huge amount of China's reserves are in US Treasuries, despite moves towards diversification away from the dollar. Reaction has been muted, however, with analysts sceptical that the report may be old or that Zhou may have been misquoted. The yen had been weakening throughout the day as gains on equity markets sparked renewed interest in the carry trade, when money is borrowed in low-yielding currencies such as the yen in order to invest in higher-yielding assets elsewhere. The Australian dollar has been a major beneficiary of this, as well as being supported by expectations that the Reserve Bank of Australia will raise interest rates further. Though the currency has edged back against the yen after the Zhou report, it continues to trade around the 0.80 level against the dollar after earlier hitting a ten-year high of 0.8035 usd. Elsewhere, the pound extended gains against the dollar after this morning's stronger-than-expected UK inflation data raised expectations that the Bank of England (BoE) will raise interest rates soon, possibly as early as April. Figures this morning showed the key UK annual CPI inflation rate unexpectedly rose to 2.8 pct in February from 2.7 pct in January, well above the central bank's target rate of 2.0 pct. In addition, a sharp rise in the RPI rate, which is often used in pay deals, to a fifteen and a half year high of 4.6 pct from 4.2 pct in January will raise concerns among UK rate-setters about high levels of wage inflation. Mark Miller at HBOS said a quarter-point hike to 5.50 pct may come as soon as April although May is a better bet since the BoE will release its next set of projections for growth and inflation then. "Markets will be alert to the possibility of an April hike although it will be a very close call," he said.