The country's foreign exchange (forex) reserve increased by US$417.8 billion last year, US$44.1 billion less than in 2007, the People's Bank of China (PBOC) said on Tuesday.

The central bank also said the supply of money and loan growth picked up in December, reflecting the government's effort to boost the economy through proactive fiscal and moderately loose monetary policies.

The country's forex reserve increased by less than US$45 billion in the fourth quarter to US$1.95 trillion by the end of 2008, a PBOC report said.

The reserve growth slowed over the months last year. The total reserve was up 27.34 percent over 2007, the lowest rate since 2001.

The growth rate from January to September was 32.92 percent and that from January to June 35.37 percent.

The fall in the growth rate is the result of a shrinking trade surplus and a possible slowdown in the inflow of "hot money", analysts said.

But despite the slowing of the reserve growth for the whole of last year, the monthly reserve for December increased US$61.3 billion, up US$30 billion year-on-year, the PBOC said. The fourth quarter's reserve, though, dropped compared to the same period in 2007.

Guo Tianyong, a Central University of Finance and Economics professor, said expectations that the yuan would weaken and extraction of capital from the domestic market to help stabilize the supply of capital in the West were major factors that caused a year-on-year drop in the fourth quarter reserve.

December saw a sharp rise in the reserve as the Central Economic Work Conference vowed early that month to keep the yuan stable - at a reasonable and balanced level - he said. That reversed expectations of a weaker yuan.

The government has been worried over "hot money" being brought into the country by businesses and individuals speculating on the continuous rise of the yuan. It fears that it would create asset bubbles and increase the pressure for the yuan's revaluation, making the domestic financial system vulnerable.

The flow of "hot money" into the country, however, began to dry up after some developed countries de-leveraged their financial markets to overcome the global financial crisis, the analysts said.

Money supply

As the money supply picked up in December, M2, which includes cash and all types of deposits and indicates overall liquidity in the financial system, increased 17.8 percent year-on-year. It had risen 14.8 percent in November.

Banks extended 772 billion yuan in new loans in December, compared to 476.9 billion yuan in November. That helped the annual loan growth to accelerate to 18.76 percent in December, up 2.66 percentage points year-on-year.