China-U.S. discord clouds Obama visit

By Patricia Zengerle and Yoo Choonsik

SINGAPORE (Reuters) - The United States and China sparred over exchange rates at a meeting of Asia Pacific leaders on Sunday, pointing to tricky talks ahead for President Barack Obama when he flies to China to address economic tensions.

The discord surfaced at a summit of the Asia Pacific Economic Cooperation (APEC) forum in Singapore when a reference to "market-oriented exchange rates" was cut from a communique issued at the end of two days of talks. An APEC delegation official said Washington and Beijing could not agree on the wording.

That underscored strains likely to feature when Obama travels to Shanghai later on Sunday following moves by Washington to slap duties on various Chinese-made products and a growing drumbeat of pressure on Beijing to let its yuan currency strengthen.

It also suggested investors should be cautious about betting on a yuan appreciation after a central bank statement last week appeared to give the green light for strengthening.

"China has pledged to keep monetary policy moderately loose, and their concern is still the economic recovery," said currency strategist Enrico Tanu Widjaja at OCBC Bank in Singapore. "They will probably let the yuan strengthen when they start tightening policy."

Chinese officials have grown testy about the pressure over the yuan. Chinese banking regulator Liu Mingkang told a forum in Beijing on Sunday that ultra-low interest rates in the United States were fuelling speculation in overseas asset markets and threatened the global economic recovery.

Obama pledged on Saturday to deepen dialogue with China rather than seek to contain the rising power, which is set to overtake Japan next year as the world's second-largest economy.

But issues ranging from the yuan and trade tensions to human rights could complicate what many regard as the most important relationship of the 21st century.