China's Premier Wen Jiabao said on Saturday that economic polices of countries which issue global reserve currencies require closer supervision as part of building a diversified international monetary system.

His comments, an apparent reference to U.S. economic management that Beijing has blamed in part for the global financial crisis, were twinned with a pledge to promote more international use of the yuan, China's currency.

Wen did not mention the United States by name but he has expressed concern in recent months about the safety of Chinese investments in U.S. dollar assets.

We should strengthen the supervision of the economic policies of the main reserve currency economies and push forward the establishment of a diversified international monetary system, he said in his opening address to the Boao Forum for Asia, held annually in the southern Chinese province of Hainan.

It was the second time this month that China has made such an appeal, following President Hu Jintao's call at the London G20 summit earlier this month for the International Monetary Fund to strengthen its oversight of reserve currency-issuing economies.

Wen said China would look at expanding its currency swap agreements that are seen as a step toward eventually making the yuan more of a global reserve asset.

We should give full play to bilateral currency swap agreements and will study expanding currency swaps in scale and to more countries, he said.

China's central bank has signed six swap deals since mid-December, totaling 650 billion yuan ($95 billion), with countries from Argentina to Indonesia.

The yuan's international potential is sharply constrained by its limited convertibility, an issue that Wen did not broach in his speech.

China caused a stir in March when it floated the idea of reducing reliance on the U.S. dollar as the world's primary unit of foreign exchange by developing the Special Drawing Rights issued by the IMF. But at the London G20 forum, China did not call for immediate discussion of the subject.

STRONG CHINA

Wen highlighted China's relative strength in the face of the global financial crisis and told the audience of Asian government and business leaders that Beijing stood ready to support other countries through the difficult times.

A series of economic stimulus measures adopted by China have shown initial results and there have been positive changes in economic performance, which has been better than expected, he said.

His wording was nearly identical to that at a State Council, or cabinet, meeting this week after China said its economy grew at 6.1 percent in the first quarter from a year earlier.

While that was the weakest quarter in year-on-year terms since records began in 1992, analysts said it represented a rebound in quarter-on-quarter growth.

But Wen also said that China would still err on the side of the caution, sticking to its active fiscal policy and moderately loose monetary policy -- which, in practice, have meant a surge in government spending and bank lending.

We would rather over-estimate the severity of the situation and fully consider difficulties in making longer-term preparation for bigger difficulties, he said.

Flexing China's fiscal muscle, Wen said China would set up a $10 billion investment fund with the member states of the Association of Southeast Asian Nations to support infrastructure projects in the region.

He also urged countries to avoid protectionism, saying that China's economic development would create more trade opportunities around the world.

($1=6.832 Yuan)

(Additional reporting by Aileen Wang; Writing by Simon Rabinovitch; Editing by Sanjeev Miglani)

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