U.S. Treasury Secretary Timothy Geithner said on Saturday he was delaying an April 15 report on whether China manipulates its currency but pledged to press for a more flexible Chinese currency policy.

The decision follows Thursday's announcement in Beijing that Chinese President Hu Jintao will attend a nuclear security summit meeting in Washington April 12-13 and seems to be a move to keep tensions over currency in check.

The Obama administration seeks broad global support for measures to curb Iran's nuclear ambitions, making it an inconvenient time to risk inflaming the dispute over China's currency policy.

Analysts said it would have been a slap in the face to Beijing if Washington had labeled China a currency manipulator days after Hu's visit.

Geithner said he will use upcoming meetings of the Group of 20 and a U.S.-China economic summit in Beijing in May to try to get China to budge.

I believe these meetings are the best avenue for advancing U.S. interests at this time, Geithner said in a statement issued at midday on the Easter holiday weekend. Treasury gave no indication when it will actually release the report.

The U.S. Business and Industry Council, a trade group, said the administration apparently would delay the release of the report until after the G20 summit meeting in June.

As a result, for three more months, more American factories will close or cut back production and more of their employees will lose their jobs because unilateral U.S. tariffs are needed to combat predatory trade practices.

'FREE PASS'

Early reaction from lawmakers, who have focused in recent weeks on China's currency policy as a primary contributor to huge U.S. trade deficits, was negative.

Republican Senator Charles Grassley, ranking minority member on the Senate Finance Committee, said Treasury's move effectively belittles U.S. influence because China's policy of pegging its yuan, or renminbi, to the dollar was blatantly manipulative and said Beijing should be called on it.

If we want the Chinese to take us seriously, we need to be willing to say so in public, Grassley said in a statement.

Finance Committee Chairman Max Baucus said Geithner should take a hard look at whether China is a currency manipulator and work with it and other trade partners to address Beijing's currency practices.

For years, Treasury has given China's currency practices a free pass, but it's time to re-evaluate, Baucus said. For too long, the United States has pursued diplomacy at the expense of American jobs and exports. Further delay is not the answer.

A declaration that China manipulated its currency would trigger negotiations between Washington and Beijing and potentially lead to sanctions if China refused to yield by moving toward a more flexible currency rate.

Geithner, caught between congressional anger at China and the administration's wish to engage Beijing on Iran policy, cast the issue as one of persuading China in global forums to accept greater responsibility as a key global trade partner.

ROADBLOCK TO ASIAN FLEXIBILITY

He said China has had to engage in increasingly large volumes of currency intervention to maintain the peg and, in the process, was blocking other countries from letting their currencies find their natural value in respect to one another.

China's inflexible exchange rate has made it difficult for other emerging-market economies to let their currencies appreciate, he said.

A move by China to a more market-oriented exchange rate will make an essential contribution to global rebalancing.

The G20 includes not only old-line rich industrial powers like the United States but also key emerging-market countries like China, Brazil and India that may be receptive to U.S. warnings that China's policy potentially risks unleashing inflation along with rising trade tensions.

China has amassed huge volumes of foreign reserves in the process of keeping the yuan's value pegged to the dollar and its efforts to invest the reserves can cause prices to rise in global markets.

Beijing has kept the yuan steady since July 2008, after allowing it to gradually rise for the previous three years.

That angers U.S. lawmakers who charge the Chinese practice effectively is a trade subsidy because it gives its exporters a price advantage in U.S. and other foreign markets at the cost of American jobs.

Delaying the report -- something that happened regularly in prior administrations -- pushes the decision after Hu's visit and avoids the risk of provoking a retaliatory response from Beijing.

ISSUE TO FESTER TILL MIDYEAR?

Geithner and Secretary of State Hillary Clinton are due to travel to Beijing in late May for a set of talks called the Strategic and Economic Dialogue, and there are meetings of G20 finance ministers in Washington later this month as well as a summit of G20 political leaders in Canada in June.

That gives administration officials a chance to build momentum to encourage Beijing to let its currency find a value that more fairly reflects China's position as the third largest economy in the world.

Look to the G20 summit in Toronto ... where President Obama may seek to build a coalition of countries that are hurt by China's undervalued currency, to step up pressure on Beijing if there has been no movement in the renminbi by then, said Bonnie Glaser, senior fellow at the Center for Strategic and International Studies in Washington.

(Additional reporting by Patricia Zengerle; Editing by Xavier Briand)

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