The Chinese renminbi yesterday recorded its biggest one-day drop against the dollar since its was de-pegged from the US currency in July 2005.

The renminbi, which is tightly managed by the Chinese authorities, lost 0.3 per cent to Rmb6.8189 against the dollar.

The move sparked speculation that China was moving away from using the appreciation of the renminbi as a tool to combat inflation towards using a weaker currency to boost export-led growth.

The People's Bank of China noted in its latest monetary policy report that containing inflation would take a "prominent position" in its policy decisions.

However, China's Politburo said on Friday that it wanted to maintain "steady and relatively fast" economic growth.

Steve Malyon, of Scotia Capital, said: "Achieving both objectives is becoming increasingly difficult but the implication is that the pace of renminbi appreciation is likely to slow".

Elsewhere, the dollar lost ground as profit-taking and rising oil prices kept the currency's rally in check.

Meanwhile, the dollar was given support over the weekend as the US senate passed a bill designed to bring an end to the country's mortgage crisis.

However, after hitting a one-month high of Y108.08 against the yen in early trade in Asia, the dollar eased as traders booked profit on the greenback's gains and a rise in oil prices stoked fears over growth in the world's largest economy.

Lee Hardman, of Bank of Tokyo-Mitsubishi UFJ, said he expected investors' new found confidence in the dollar - the best performing main currency last week - to be tested further.

He said optimism towards the dollar had been based not only on increasing evidence of weakness in other leading economies and falling oil prices but also on investors being increasingly of the view that all downside risks to the US economy were fully priced in.

Mr Hardman added, however, that data this week, including US second-quarter growth figures and the US employment report, could challenge that view.

He said: "The recent positive dollar sentiment is likely to be severely tested given the release of several top-tier US economic reports, which may prompt market participants to reassess the US economy's resilience" .

By late afternoon in New York, the dollar had lost 0.3 per cent to Y107.44 against the yen, eased 0.2 per cent to $1.5740 against the euro and fallen 0.2 per cent to SFr1.0342 against the Swiss franc.

The dollar was flat at $1.9917 against the pound, however, on more evidence of a slowdown in the UK housing market.

The pound fell 0.2 per cent to £0.7900 against the euro and lost 0.2 per cent to Y214.33 against the yen.