BEIJING (AFP) - Debate is heating up in China on what to do with the nation's forex reserves, which are already the world's largest and rapidly heading towards the trillion-dollar mark, state media said.

The reserves reached 987.9 billion dollars at the end of September and if this year's trend of 18.8-billion-dollar monthly increases continues, they should have hit the unprecedented one trillion dollar level by late October.

"How to manage such big reserves is a huge challenge," said Yi Xianrong, a researcher at the Chinese Academy of Social Sciences in a China Daily report.

"The crux of the problem is that you have to keep the value stable or increasing," Yi said.

China publishes data on its forex reserves at irregular intervals but the official announcement of holdings exceeding a trillion dollars is widely expected to be made sometime in November.

Li Yongsen, a finance professor at the People's University in Beijing, told the news paper China should diversify its forex holdings away from the current heavy emphasis on dollars, buying assets in euros and other major currencies.

The central bank could buy more state bonds issued by other major economies and decrease its holdings of US Treasury bills, he said, adding: "It's better to spread the risk and not put all your eggs in one basket."

China has not given a detailed breakdown of its forex holdings, but independent economists believe about 70 percent is invested in dollar-denominated assets.

The rapid increase in China's forex reserves has been fueled mainly by its ballooning trade surplus, which hit nearly 110 billion dollars in the first nine months of the year.

The China Daily quoted unnamed economists as saying an increase in imports would be an effective short-term way to trim the growth in reserves.

It would also help ease trade frictions with countries posting large deficits with China, the economists said.