China and Brazil should ditch the US dollar in their bilateral trading and replace it with their own currencies, Brazilian President Luiz Inacio Lula da Silva said yesterday.

In a half-hour interview before leaving Beijing for Turkey, Lula also urged both countries to be "cautious" to make their trade relations balanced.

"I believe it's extremely important that we should not rely and be dependent on the (US) dollar only to make our financial transactions," Lula said.

In his meeting with President Hu Jintao on Tuesday, Lula said he told his Chinese counterpart that both countries' governors of the central banks and finance ministers should meet within the year to "start a conversation" on the issue.

"China has its own currency; Brazil has its own currency. We will regulate this new trade practice," Lula said.

In September, Brazil and Argentina signed an agreement under which importers and exporters in both countries may make and receive payments in local currency, although they may also continue to use the US dollar if they prefer.

The move was an attempt to reduce costs by eliminating fees on currency exchange.

Lula said Brazil wanted to extend the arrangement to all South American countries.

But Shi Lei, an analyst in Beijing at the nation's largest foreign-currency exchange, said: "It may take a couple of years for China and Brazil to really start using the yuan in trades because the currency is of limited use outside China."

"We should first start yuan settlement with Hong Kong and build an offshore yuan center to expand channels for yuan use," Shi was quoted as saying by Bloomberg news.