Yuan move probably appropriate if China slowing: Fed's Dudley

By Jonathan Spicer

(Reuters) - An adjustment to China's currency is probably appropriate if the Chinese economy is weaker than authorities there expected, a top Federal Reserve official said on Wednesday in the U.S. central bank's first public response to the devaluation of the yuan.

"Obviously if the Chinese economy is weaker than maybe what the Chinese authorities anticipated, it's probably not inappropriate for the currency to adjust in consequence to that weakness," said New York Fed President William Dudley.

"It's very early days to judge what's happening in China in terms of the changes in their currency policy. Clearly what was happening is the Chinese yuan was appreciating along with the U.S. dollar," Dudley, a close ally of Fed Chair Janet Yellen, said after a speech in Rochester, New York.

A dovish official with a permanent vote on U.S. monetary policy, Dudley also said the Fed was nearing an interest rate hike but did not predict when it would happen.

China's currency fell for a second day on Wednesday as pressure grew within the country's government to press its central bank to devalue the yuan yet more.

The world's second-largest economy has slowed, weakening global commodity prices and prompting such stimulus moves by Chinese authorities.

The devaluation helps align the yuan with other global currencies that have slid as the Fed prepares to raise interest rates, and it could boost the U.S. dollar yet more and put downward pressure on U.S. inflation.

"What's going on in China has huge implications for the rest of the world ... (and) has huge implications for demand in other countries and significant implications for commodity prices," Dudley said in response to an audience question.

"It's too soon to draw any firm conclusions about what this means," he added.

Turning to U.S. interest rates, Dudley said he hoped to begin to tighten policy "in the near future."

"When that is precisely depends on the data," he said, adding the Fed wanted to see a "strong, stable" economic recovery.

Economists had increasingly predicted the Fed could raise rates for the first time in nearly a decade at a policy meeting in mid-September, given strength in the U.S. labor market.

"I'm not going to tell you when because I don't know the answer to that," Dudley said of a rate hike. "But clearly we've made progress over the last couple of years. We're certainly getting nearer to that point in time."

(Reporting by Jonathan Spicer; Editing by Meredith Mazzilli)

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