SHANGHAI (AP) – By loosening its currency's peg to the dollar, China is seeking to defuse complaints that it keeps its exports artificially cheap, strengthen its hand against inflation and ensure its economy can keep growing at a healthy pace.

The Chinese yuan surged to a record high Monday as Beijing delivered on its central bank's weekend promise of greater flexibility in its exchange rates. World shares rallied as investors took heart from the signal of confidence in China's resilience though the enthusiasm faded in late trading on Wall Street and most Asian markets were lower Tuesday.

Analysts said the move was not a major shift in foreign policy.

They described it instead as a maneuver aimed mainly at countering criticism of Beijing's currency policies before this weekend's summit of the Group of 20 leading economies. Beijing's trading partners have been frustrated by their perennial trade imbalances with China.

“This is a type of 'diplomatese' before the G-20,” said Yi Xianrong, a prominent economist at the Institute of Finance in the Chinese Academy of Social Sciences, a government think tank.

But Beijing's decision to give up the dollar link it imposed two years ago to help its exporters during the recession also shows it recognizes the need for flexibility in its own economic policies.

China's large trade surpluses oblige the central bank to intervene in the exchange market: It buys up excess foreign exchange earnings to keep the yuan's value from rising. Greater flexibility will allow more leeway in China's monetary policies, helping it counter inflation.

“Chinese policymakers are attempting to engineer a scenario that maximizes political goodwill while at the same time minimizes any negative economic impact,” said Alaistair Chan, an economist at Moody's Analytics in Sydney.

The shift away from the dollar peg pushed the yuan to 6.7971 on Monday from 6.8272 yuan on Friday. It was a shift of 0.4 percent and an abrupt break from the narrow range around 6.83 yuan to $1 that had held since mid-2008.

The central bank still sets the exchange rate each day before the start of trading – Tuesday's opening rate was 6.7980 – and limits daily fluctuations to 0.5 percent. Its announcement late Saturday stressed China's commitment to keeping the currency stable.

Allowing greater flexibility suits China's own needs. Apart from helping Beijing fight inflation, it should encourage manufacturers to improve efficiency and reduce the country's reliance on exports as a driver for growth, the central bank said.

By ruling out any one-time major revaluations, the People's Bank of China also doused speculation over such moves and removed a source of uncertainty for investors. China's share market responded by jumping nearly 3 percent Monday.

“China has to keep the currency stable under the current circumstances and will certainly take any consequences of the yuan's appreciation very seriously,” Yi said.

The decision to revert to a basket of currencies including the US dollar, rather than the dollar alone, to set the exchange rate restores policies in place before the global downturn walloped Chinese manufacturers in 2008. Millions lost their jobs.

China had set up the basket-linked exchange rate system in July 2005, allowing the yuan to gradually gain nearly 20 percent until the financial crisis hit.

China's economy surged 11.9 percent in the first quarter of this year, and exports jumped by nearly 50 percent over a year earlier in May. That was despite expectations that Europe's debt crisis would hit demand in the 27-nation European Union, China's biggest trading partner.