China Afghan banking deal halts tied to Xinjiang unrest - sources

HONG KONG/BEIJING (Reuters) - A decision by some Chinese banks to stop dollar business transactions with Afghanistan banks is connected to recent attacks in China's western Xinjiang region, two senior banking sources said.

One of the sources said dealings between Chinese and Afghanistan banks were subjected to greater scrutiny as early as two years ago in line with global rules, but regulation was further tightened this year mainly due to the conflicts in Xinjiang.

Xinjiang has seen a series of knife and bomb attacks in recent months, which the Chinese government attributes to Islamists and separatists, whom it says want to turn the region into an independent state called East Turkestan.

"This is mainly because of the Xinjiang problem," the source said. "The training ground of East Turkestan forces is in Afghanistan."

As a result, the source said his bank has halted all transactions with its Afghanistan counterparts this year.

China's central bank did not respond to questions sent by Reuters.

Afghanistan's central bank governor told Reuters on Thursday that Chinese banks have halted dollar transactions with most Afghan commercial banks.

China had its biggest attack in Xinjiang in years on Thursday when explosives were hurled from two vehicles that ploughed into an open market, killing 31 and wounding 94.

(Reporting by Victoria Bi and Koh Gui Qing)