"China's decision to increase the flexibility of its exchange rate is a constructive step that can help safeguard the recovery and contribute to a more balanced global economy," Obama said in a statement.

"I look forward to discussing these and other issues at the G20 Summit in Toronto next weekend."

Yet some lawmakers and analysts remained skeptical about whether the action on the yuan, also known as the renminbi, was simply a symbolic action in the face of pressure from Washington.

Economist Peter Morici of the University of Maryland called the move "a token gesture intended to defuse the pressure."

Representative Sander Levin, who heads the key House Ways and Means Committee, said he welcomed Beijing's move "a positive first step, but it remains to be seen whether this move will be more symbolic than significant."

"The significance of this policy will depend on how much the government of China allows the renminbi to appreciate over time," Levin said in a statement.

"We have seen actions like this before and it is clear that China did not allow enough appreciation the last time it adopted a policy like this one, from 2005-2008. If China takes that same approach again, the United States will still need to take action."

Levin, whose committee oversees taxes and trade, had warned earlier in the week that "if China does not act and the administration does not respond promptly thereafter, the Congress will act."

Senator Charles Schumer, who is pressing for legislation that would retaliate against China for currency manipulation, was more skeptical.

"This vague and limited statement of intentions is China's typical response to pressure," the New York Democrat said.

"Until there is more specific information about how quickly it will let its currency appreciate and by how much, we can have no good feeling that the Chinese will start playing by the rules.

"We hope the Chinese will get more specific in the next few days. If not, then for the sake of American jobs and wealth, which are hurt every day by China's practices, we will have no choice but to move forward with our legislation."

Amid growing pressure on Beijing to strengthen its currency, China's central bank announced it would further promote reform of its exchange rate mechanism, but maintained there was no basis for "large swings" in the currency.

The announcement came ahead of a meeting of the G20 biggest industrialized and developing economies in Toronto June 26 and 27, when the controversial exchange rate policy is expected to be on the agenda.

In welcoming the move, US Treasury Secretary Timothy Geithner said "vigorous implementation would make a positive contribution to strong and balanced global growth."

The United States, through the administrations of Obama and his predecessor George W. Bush, has long stressed that China keeps its yuan undervalued but has stopped short of branding Beijing as a currency manipulator.

US lawmakers insist the Asian giant has undervalued its currency to gain an unfair trade advantage, making Chinese exports cheaper and ballooning Washington's trade deficit with Beijing.

Earlier this month, Geithner, under fire for delaying a Treasury report to Congress due in April that could have labelled China a currency manipulator, said Beijing's refusal to revalue its currency impeded global economic reforms.

China's central bank said that despite its decision, there were no grounds for large movements or change in the exchange rate and reiterated it will continue to manage the floating exchange rate "within the band already announced."

Export-driven China has effectively pegged the yuan to around 6.8 to the dollar since July 2008 to support manufacturers battered by the financial crisis and preserve jobs in a sector that employs tens of millions of people.

The currency has been allowed to move within a 0.5 percent range on either side of the peg.

US trade data earlier this month showed the US deficit with China expanded by 14.3 percent to 19.3 billion dollars in April.

Last year, the deficit rose to a whopping 227 billion dollars.

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