CHINA'S financial and capital account surplus surged in the first quarter as looser monetary policies in developed economies and expectations of yuan gains spurred inflows of funds.

The US$101.8 billion figure has been the biggest since the three months through December 2010 and up from US$56.1 billion in the same period of last year, according to preliminary data released by the State Administration of Foreign Exchange yesterday. The account returned to a US$20 billion surplus in the fourth quarter of 2012, reversing two quarters of deficits.

Capital inflows are being driven by speculation that the People's Bank of China will tolerate more yuan appreciation and by quantitative easing in Europe, the US and Japan that's spurring investors to seek higher returns.

The currency climbed to a 19-year high yesterday as the central bank set a record reference rate.

"This is driven by a more stable global economy that has increased investors' risk appetite as well as prospects for yuan appreciation and a sizeable interest-rate spread," said Ding Shuang, a Hong Kong-based economist with Citigroup Inc. "Inflows may continue if economic growth can be sustained although renewed tension in the global economy such as a debt crisis in a major economy in the eurozone will likely shift the direction."

The central bank "spent the first quarter fighting the inflows, accumulating US$157 billion of foreign exchange along the way," said Wang Qinwei, a London-based economist at Capital Economics who previously worked at the PBOC.

The central bank and financial institutions bought a record net 683.7 billion yuan (US$111 billion) of foreign currency from customers in January, as companies and individuals offloaded dollars to buy yuan in expectation of appreciation. They bought 295.4 billion yuan in February and 236.3 billion yuan in March.