Euro zone not counting on quick response to yuan call

China, for its part, did not budge from long-standing wording on its exchange rate policy, with Premier Wen Jiabao restating that the yuan should be kept at a reasonable, balanced level.

"I can't say that I'm more optimistic than I was before I came here," Luxembourg Prime Minister Jean-Claude Juncker, who chairs the 16-nation Eurogroup of euro zone finance ministers, told a news conference in the eastern Chinese city of Nanjing.

Speaking after a day of talks with senior officials including Wen, he said it was tough to justify the yuan's recent depreciation against a basket of currencies in light of China's fast economic growth and bulging external surpluses.

"People think an orderly and gradual appreciation of the renminbi would be in the best interest of China and in the best interest of the global economy," Juncker said.

The yuan rose 21 percent in all against the dollar in the three years after Beijing ended a peg to the U.S. currency in July 2005 and said it would let the yuan float in a managed band with reference to a basket of currencies.

Last July, however, China effectively repegged the exchange rate around 6.83 per dollar to help its beleaguered exporters.

"We are not advocating an immediate, short-term-oriented, dramatic change in Chinese monetary policy, but, as I said, an orderly and gradual appreciation of the renminbi," Juncker said.

"WE WILL SEE"

The Chinese central bank caused a stir this month by dropping from its quarterly monetary report a stock reference to keeping the yuan's exchange rate at a reasonable and balanced level.

Some economists thought Beijing was flagging a shift in policy, and European Central Bank Governor Jean-Claude Trichet said Chinese officials had promised to keep implementing the currency reforms launched in 2005.

"But I would not interpret that it means immediate changes. It is again the decision of Chinese authorities and I will not over-interpret," Trichet said. "It is their decision, and we will see."

Despite the caution, Joaquin Almunia, the EU's commissioner for economic and monetary affairs, said Chinese officials had disclosed that a stronger yuan would be part of their strategy for eventually unwinding pro-growth policies adopted a year ago.

"One of the elements of this exit strategy, according to our Chinese friends, is to resume the regime for the exchange rate of the renminbi that was agreed in July 2005," Almunia said.

Sunday's meetings, a repeat of a 2007 mission, took place on the eve of a regular summit between China and the 27-member EU.

The yuan's exchange rate is one of the biggest bones of contention between China and Europe, and the euro zone officials described Sunday's meetings as friendly but frank -- a euphemism typically used when there is disagreement.

European Commission President Jose Manuel Barroso said the yuan's link with a weak dollar was creating problems for some sectors of the European economy.

NO DUBAI FALLOUT

Juncker said Chinese officials had explained that it was tough to convince their domestic audience to back an immediate resumption of the yuan's rise.

But the euro zone delegation pointed out the risk of a protectionist backlash against China, which sends 20 percent of its exports to EU, if it prevents its currency from rising to levels that reflect its growing economic clout.