GLOBAL ECONOMY-Currency tensions persist as markets await Fed

* China slams U.S., Japan over currency stance

* All eyes on Bernanke, U.S. currency report

* Verbal jousting mars run-up to key G20 meetings

* ECB policymakers demand more emerging mkt flexibility

By Aileen Wang and Tetsushi Kajimoto

BEIJING/TOKYO, Oct 15 (BestGrowthStock) – Recriminations over
currencies reverberated worldwide on Friday ahead of a speech by
Federal Reserve chief Ben Bernanke, whose loose policies are
blamed by China and others for destabilising capital flows.

Beijing kept up the heat on the United States, saying
Washington should not make China a scapegoat for its own
problems by constantly pressing for a swifter rise in the yuan.

Speaking hours before the U.S. Treasury Department is due to
deliver its semi-annual assessment of whether China manipulates
its currency, Commerce Ministry spokesman Yao Jian said it was
not fair to criticise Beijing’s exchange rate policy simply by
pointing to China’s trade surplus. [ID:nBJA002309]

“Other countries have no right to comment on what is a
reasonable level for a country’s trade surplus,” Yao told a
monthly news conference.

Sniping over what exchange rates are appropriate to put the
world economy back on course is intensifying ahead of a pair
meetings of the Group of 20 leading economies in South Korea.

European Central Bank policymaker Juergen Stark was reported
as saying countries must avoid a ‘fatal’ race to devalue and
instead coordinate better to smooth out currency swings.

Both he and his colleague, Jose Manuel Gonzalez-Paramo, said
China, which is resisting pressure from the United States and
other developed nations to allow its yuan to revalue faster,
needed to be more flexible. [ID:nLDE69E04N]

G20 Finance ministers meet next week in Gyeongju to prepare
for a summit of their leaders in Seoul on Nov. 11-12.

U.S. data on Thursday showed America’s trade deficit with
China swelled to a record high of $28 billion in August — grist
to the mill of U.S. politicians who say that China keeps the
yuan artificially cheap to help its exporters. [ID:nN14277059]

Spot yuan (CNY=CFXS: ) ended at its highest closing level
against the dollar since its landmark revaluation in July 2005
but U.S. critics say it is still 20 percent or more undervalued.
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For package of graphics on currencies, trade and monetary
policy: http://r.reuters.com/deh58p
For PDF report “On the frontline of the global currency war”:
http://r.reuters.com/gez77p
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LOGGERHEADS

Japanese Finance Minister Yoshihiko Noda stressed that
countries must work together to strengthen the global currency
order. Governments would find it tough to cope with the current
environment on their own, he told reporters. [ID:nTOE69E00B]

Noda struck a more conciliatory tone than on Wednesday, when
he criticised South Korea for intervening repeatedly to curb the
won, and China, for dragging its heels in letting the yuan rise.

“Before saying this or that about other countries’ currency
policies, we must do what we should do,” Noda said.

Yao, the Chinese Commerce Ministry spokesman, was in no mood
to forgive or forget. Japan has “no reason, no grounds and is
not qualified” to criticise China’s currency policy, he said.

Some South Korean newspapers weighed in too, saying Japan
risked sacrificing friendly diplomatic relations with its
neighbours to placate its export companies, which are suffering
due to the yen’s rise to a 15-year high against the dollar.

The dollar hovered near a 10-month low versus a currency
basket as the conviction hardened that the Fed will further ease
monetary policy next month to try to kick-start the lethargic
U.S. economy. [FRX/]

WAITING FOR BERNANKE

Financial markets, which expect the U.S. central bank to
begin soon a second round of buying of U.S. Treasury bonds with
new money — to the tune of $500 billion or more — will hang on
Bernanke’s words for clues about the likely scope.

Bernanke is due to speak at 1215 GMT. [ID:nN14141178]

The Fed’s policy remit is domestic, but the side-effects of
minting new dollars to pay for the asset purchases are a weaker
dollar and investors’ rush into emerging markets, where growth
prospects are brighter and yields are higher.

In response, several governments have stepped into forex
markets or tried to curb capital inflows, raising fears of a
currency “race to the bottom” that may trigger protectionism and
hit global growth.

“With the recovery slow in the advanced countries, each
country relies more on exports for growth and tension
surrounding foreign exchange rates is intensifying,” South
Korean Finance Minister Yoon Jeung-hyun said. “There are signs
that this could develop into trade protectionism.”

Lawrence Summers, a top economic adviser to U.S. President
Barack Obama, also flagged protectionism as a rising threat to
the global economy that destroys value. [ID:nSGE69E0E6]

Singapore decided on Thursday not stand in the way of market
forces and said it would let its dollar rise more quickly.

But India intervened to temper a rising rupee, while South
Korea tried to deter unwanted inflows by keeping interest rates
steady even at the risk of allowing inflation to build.

Thailand this week imposed a withholding tax on foreign
purchases of government bonds. But the new chief of the central
bank said Bangkok would be wary about further steps.

“Stringent measures will have side effects, so what to use
and when, we have to look at the real situation,” Bank of
Thailand Governor Prasarn Trairatvorakul said. [ID:nSGE69E03D]
(Writing by Alan Wheatley and Mike Peacock; Editing by Toby
Chopra)

GLOBAL ECONOMY-Currency tensions persist as markets await Fed