The U.S. Treasury Department's decision not to label China a currency manipulator makes it more likely that Washington will get what it wants: a stronger yuan.

Beijing is likely to respond by allowing the yuan to resume its steady climb against the dollar that stalled last month, according to many economists and analysts who follow China.

That might not have been politically possible had Wednesday's decision gone the other way, even though a stronger currency might be in China's own best interests because of concerns that its economy is overheating. Chinese leaders are still constrained by public sensitivity to perceived U.S. bullying, and don't want to be seen as caving in to U.S. pressure.

China's central bank on Thursday declined to comment on the U.S. move. But its actions in the foreign-exchange market during the past several weeks indicate that Beijing had put its currency policy on hold while it waited for the U.S. Treasury decision.

China's Ministry of Foreign Affairs responded to the Treasury report by defending its currency policy as "highly responsible" and suitable to both its own economic needs and the interests of regional financial stability. Ministry spokesman Liu Jianchao also reiterated China's pledge to "unswervingly" continue to "perfect" its foreign-exchange mechanism and increase the yuan's flexibility, while maintaining "basic stability" in the currency's exchange rate.

Branding China a manipulator would simply have required the U.S. government to open formal talks with Beijing. However, it might have also triggered retaliatory legislation in the U.S. Congress, where politicians accuse China of unfairly keeping the yuan's value low to make Chinese exports cheaper in dollar terms. Last year, the U.S. bought $202 billion more in goods from China than it sold to that nation, leading to a record trade deficit that has fueled tensions between the nations.

While declining to brand China a manipulator, the U.S. Treasury nevertheless hardened the rhetoric against Beijing. On Thursday, a senior Treasury official in Beijing kept up the pressure, saying that "we don't see any technical reason why China could not move today toward a more flexible exchange-rate regime."

The U.S. official pointed to "a lot of work" China has done during the past several years to build the infrastructure needed to create a functioning currency market. Companies can now hedge their currency risks, he said, and the introduction of interbank foreign-exchange trading has made the market more liquid.

But uncertainties surrounding the Treasury decision have frozen the market during recent weeks. The yuan was on track to appreciate 3% to 4% this year. That momentum died in April, and the yuan has since hovered fractionally below the psychologically important level of 8 to the dollar. On Thursday, the yuan remained becalmed at 8.0042.

Trading might become more volatile. Qu Hongbin, chief China economist at HSBC, said he "won't be surprised" if the yuan strengthens beyond 8 to the dollar in the next few days and resumes its upward trajectory.

But economists say the yuan's climb will likely be dictated by domestic considerations, not from a desire to satisfy Washington. "Basically, China will move at its own pace on yuan appreciation," said Yi Xianrong, a researcher with the Chinese Academy of Social Sciences, a think tank.

Hong Liang, the China economist at Goldman Sachs, said that while the Treasury decision "has given China a little bit more breathing room," China urgently needs a stronger yuan to help cool signs of economic overheating. An undervalued currency stimulates the economy by encouraging exports and sucking in investment and speculative money betting on an eventual appreciation.

Since April, Ms. Liang said, the yuan has depreciated by some 3% against a basket of currencies that includes those of China's major trading partners, adding froth to the economy. For that reason, some economists expect Beijing to pick up the pace of appreciation from earlier this year.

Jonathan Anderson, chief Asia economist at UBS, said a one-time appreciation the yuan of as much as 5% is conceivable, followed by further steady strengthening.

Adding to signs that cash flooding into China is causing problems, Beijing's National Bureau of Statistics announced Thursday that producer prices rose by just 1.9% in April from a year earlier. That was down from annualized growth of 2.5% in March. Factories are finding it difficult to raise prices amid a glut of capacity, as runaway bank lending has fueled investment in manufacturing.

The U.S. Treasury official made clear that Washington wasn't pushing for dramatic currency change overnight. Washington has "realistic" expectations, he said. "We're being practical. We don't expect that China will become Australia or New Zealand in the short or probably even medium term," he said, referring to two countries with free currency markets.

He said the U.S. Treasury's objective is a more flexible currency regime in China, and said the U.S. isn't specifically arguing that the yuan is undervalued. He also said the Treasury Department rejects the arguments of critics who "have focused on China's exchange rate as the sole or maybe primary factor for the large global imbalances."

Indeed, economists who predict China will allow faster appreciation generally believe the increase will be gradual. There are few expectations that China will consider the kind of sharp appreciation that some U.S. politicians would like to see. In fact, economists are divided over whether revaluation in itself would do much to narrow China's huge bilateral trade surplus with the U.S., although some say a stronger yuan would trigger wider revaluation around Asia that could make a dent in the U.S. trade deficit with the region.