China's foreign exchange regulator said on Friday that it had approved US$4.8 billion in quotas for three banks to invest abroad under the Qualified Domestic Institutional Investor (QDII) scheme.

The approval paves the way for the formal start of a regime for allowing financial institutions in China to invest their clients' funds in overseas markets, which analysts say will help ease some of the upward pressure on the yuan.

The three banks granted quotas are Bank of China, Industrial and Commercial Bank of China and Bank of East Asia, the State Administration of Foreign Exchange (SAFE) said on its Web site.

The quota for Bank of China would be US$2.5 billion, that for ICBC US$2.0 billion, and that for Bank of East Asia US$300 million, the agency said.

"All those banks that have already been approved and that are awaiting approval have applied for relatively large quotas, indicating that this business will have a broad and promising future," the agency said in a statement.

Analysts have said QDII funds are most likely to flow first to Hong Kong's market, bolstering stocks listed there.

The agency said it was still considering what size of quotas to allocate to China Construction Bank Corp. and Bank of Communications.

The size of the QDII quotas may come as a surprise to some market participants, because quotas granted under China's Qualified Foreign Institutional Investor (QFII) scheme have typically been just US$100 million to US$300 million.

"A lot of people were coming out saying it was going to be similar to QFII, a couple hundred million here, a couple hundred million there," said Peter Alexander, head of Shanghai-based fund industry consultancy Z-Ben Advisors.

"Based upon what we had anticipated, they're a bit higher," he added.

China opened its main A-share and bond markets to overseas investors in 2003 under its landmark QFII program. Previously, foreigners could only invest in the tiny B-share market. More than 30 overseas companies have been given a combined quota of US$7.1 billion to invest.

China's forex regulator and the People's Bank of China, the central bank, first announced rules establishing the new QDII investment scheme in principle in April.

Many economists say the outflows of foreign exchange that will result from the investments overseas will serve as a sort of pressure valve for the yuan, countering the huge inflows of foreign currency resulting from the country's large trade surplus.