UPDATE 2-China denies yuan behind U.S. trade gap

* China says yuan is not cause of its trade surplus

* Politicising FX rates will do harm -Commerce Ministry

* Exchange rate policy to stay stable this year

* U.S. Treasury decision in April raises pressure (Adds details and comment)

By Aileen Wang and Chris Buckley

BEIJING, March 16 (Reuters) - China on Tuesday shunned mounting U.S. demands for a stronger yuan, saying again that its currency is not the cause of its big trade surplus and vowing to keep the currency stable to shore up exports.

Beijing and Washington appear to be locked in a dialogue of the deaf in the run-up to a U.S. Treasury Department report due on April 15 that will determine whether China is manipulating its exchange rate for trade advantage.

"If the exchange rate issue is politicised, then in coping with the global financial crisis this will be of no help in coordination between the parties involved," Chinese Commerce Ministry spokesman Yao Jian told a regular news conference.

Yao rejected the argument that China's hefty trade surplus with the United States was due to the yuan, also called the renminbi, which some U.S. economists judge to be 25 percent or more undervalued.

"The trade surplus is not caused by the renminbi exchange rate. The trade surplus is an outcome and phenomenon of globalisation. It will exist for a time," he said.

Yao's comments echoed recent ones by Premier Wen Jiabao and other Chinese officials, who have stressed that whatever adjustments may come to the nation's exchange rate, Beijing does not want to be seen as bowing to foreign pressure.

With the U.S. Treasury decision looming, China faces a tricky test in deciding when to make any currency moves.

Yao was speaking a day after 130 U.S. lawmakers demanded that President Barack Obama get tough with China over its currency practices, which they say undercuts the competitiveness of U.S. manufacturers. [ID:nN15224170]

"The impact of China's currency manipulation on the U.S. economy cannot be overstated. Maintaining its currency at a devalued exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign competitors," the legislators said in a letter.

Premier Wen on Sunday dismissed U.S. complaints about China's exchange rate, calling them counterproductive and saying he did not believe the yuan was undervalued. [ID:nTOE62D001]

If the Treasury does rule that China is manipulating its exchange rate, the U.S. government would be required in principle to start "expedited negotiations" on the issue. [ID:nN12180468]

"Adjustment in the renminbi exchange rate will be determined based on national economic conditions, and not because of external market pressures," Sun Lijian, an economist at Fudan University in Shanghai, told the China Economic Times on Tuesday.

NO REASON AT ALL

Yao asked rhetorically whether China, which has a trade deficit with Japan, South Korea and some developing countries, should copy the United States and pass a law to deal with those countries.

"So we hope that in surmounting the crisis and reviving its economy, the United States should be a promoter of free trade, not an obstacle to it," he said.

The United States' annual trade gap with China fell to $226.8 billion in 2009, down from a record $268.0 billion in 2008. But with the Obama administration keen to lift exports and employment, the deficit remains a point of friction between the two powers, which have also recently been at odds over human rights, Tibet and U.S. arms sales to Taiwan.

Wen on Sunday recommitted China to pushing ahead with reform of the yuan's exchange rate mechanism, leaving the door open to reintroducing exchange rate flexibility if it suits Beijing.

China has kept the yuan pegged around 6.83 per dollar since July 2008 to help its exporters, and Yao, the Commerce Ministry spokesman, said stability would remain the watchword in 2010.

"We have no reason at all to view the future market with unfettered optimism," he said of the outlook for exports.

"So we will keep our economic and trade policies, including exchange rate policies and export tax rebates, stable this year," he added. (Writing by Alan Wheatley; Editing by Ken Wills and Tomasz Janowski)