China yesterday announced it will no longer peg its currency to the U.S. dollar, a long-awaited change sought by the Bush administration, the nation's manufacturers and much of the industrialized world.

Instead, China's central bank said that, beginning today, it will let the yuan float in a tight range of 0.3 percent against a basket of foreign currencies that it did not name, the first such loosening in a decade. The yuan immediately strengthened against the dollar, to 8.11 per dollar from 8.3.

The announcement sent the dollar down and the Japanese yen, euro and British pound higher in international currency markets, beginning a process that some economists say is necessary to ease huge U.S. trade deficits with China and other countries.

The United States, Europe and Japan have long complained that the yuan's tie to the dollar undervalued China's currency, giving its exporters of goods, from clothes to televisions, an unfair price advantage over domestic suppliers. U.S. retailers alone bought about $65 billion in Chinese goods last year.

But a small increase in the yuan's value isn't expected to do much immediately to narrow the U.S. trade deficit or to save manufacturing jobs that are leaving Western nations because of China's comparatively low wages.

Fariborz Ghadar, director of Penn State University's Center for Global Business, said the main impact will be to reduce some of the political pressure against China to push up the value of its currency.

"I don't think 2 percent is going to make any kind of major dent in the value of the exports or reduce the trade deficit significantly,'' Ghadar said. "I think it's a political gesture to say, 'OK we're doing something. Here's a step toward liberalizing our economy.' "

Until now, China had been resisting such a change despite increasing pressure from the United States and others. "It's a good sign,'' Ghadar said. "It's more of a significant statement than a significant economic implication."

The change falls short of the 10 percent to 15 percent revaluation sought in Washington by some Congressional leaders hoping to ease more quickly the trade gap between the United States and China.

Still, the move was praised by the White House, which is facing political pressure because of a record $162 billion deficit with China and has been under fire from manufacturers desiring an end to China's practice of keeping its currencies artificially weak against the dollar.

"This is a very positive development. It clearly puts China on the right path," said Treasury Secretary John Snow.

Federal Reserve Chairman Alan Greenspan called the announcement a "good start."

But some economists worry that China may have unleashed economic forces that eventually could worsen inflation in the United States by making imports not just from China but all of Asia more expensive for Americans.

There also is concern that interest rates will be rising, too, as the Chinese curb the massive purchases of U.S. Treasury bonds they have been making as part of their campaign to keep the yuan fixed in value against the dollar.

But most analysts argued that the overall impact on the U.S. and world economies will be extremely positive by trimming America's huge deficits, which pose a threat to global financial stability.

A rising value of the yuan in relationship to the dollar is expected to eventually stabilize and then begin lowering the U.S. trade deficit and boost the fortunes of beleaguered American manufacturers, who have lost 3 million jobs since mid-2000.

"The winner in all of this will be American businesses and ultimately U.S. workers. It is now more likely that a person working in a U.S. factory today will still be working in that factory five years from now because American products will be more competitive," said Mark Zandi, chief economist at Economy.com, a forecasting firm.

Although yesterday's adjustment in the exchange rate was slight, the change led many observers to say they believe it is the first step in a slow process to loosen the rate.

"I would be very surprised if this is the final peg in the puzzle. This is the first piece," said Matthew Lifson, managing director and chief dealer of foreign exchange for Downtown-based PNC Financial Services Group.

Each day, according to a statement by the Chinese government, the bank will announce the yuan's closing price. That rate would be the midpoint for a 0.3 percent band in which the yuan will be allowed to trade the following day.

It was called a good first step but smaller than expected by U.S. Sen. Charles Schumer. The New York Democrat is sponsoring a bill that would impose tariffs on Chinese goods without a change in the exchange rate.

The Chinese economy, the fastest growing among major countries, is expected to withstand a strengthening of its currency.

The decision came a day after China said economic growth accelerated to 9.5 percent in the second quarter, aided by a $39.6 billion trade surplus, rising consumer spending and investment in factories and other facilities.

The National Association of Manufacturing, which has been pressing the last two years for greater Chinese currency flexibility, said the change has the potential to be enormously significant depending on how the new system works.

"China's new currency system offers the possibility for continued upward movement of the yuan in the coming weeks and months, and that is what we will be looking for," said John Engler, NAM's president.

Dave Frengel, the government affairs director for Penn United Technology, a tool, die and spare parts manufacturer in Cranberry, was less hopeful. He said he will continue pressing for legislation that would penalize China for currency manipulation.

"Long range, there needs to be a significant change in the value of the yuan versus the dollar and in six months to a year, we'll know if this will be a good move or if we're still in trouble," he said yesterday.