UPDATE 1-China's yuan move to help ties-U.S. ambassador

* Yuan move removes "irritant" in U.S.-China relations

* Step a "genuine attempt" to provide yuan flexibility

* No real progress in military relationship (Adds details, quotes)

By Sui-Lee Wee

HONG KONG, June 21 (Reuters) - China's signal over the weekend that it would give more room for the yuan to move is a genuine step toward currency reform that should help improve U.S.-China ties, the U.S. ambassador to China said on Monday.

"I think it takes an irritant off the table in the U.S.-China relationship," Ambassador Jon Huntsman said after a speech to mark the end of this year's U.S.-China Strategic and Economic Dialogue.

Beijing's move on the yuan is a "genuine attempt" to provide greater flexibility to the exchange rate mechanism, he added.

China's central bank said on Saturday that it would give more flexibility to the yuan, buying some time as Beijing attempts to stave off criticism that its currency is deeply undervalued.

Huntsman also said he saw "no signs of real progress" in U.S.-China military relations. Ties have been strained over issues such as U.S. arms sales to Taiwan, which China considers a renegade province, and President Barack Obama's meeting at the White House with Tibetan spiritual leader the Dalai Lama, denounced as a separatist in Beijing.

Washington wants Beijing to abandon a currency peg against the dollar that U.S. lawmakers say gives Chinese exports an unfair advantage in world trade and steals American jobs.

China's announcement appeared timed to deflect criticism at an this weekend's Group of 20 summit in Canada and placate an increasingly insistent Obama administration and hostile U.S. Congress.

U.S. ENTHUSIASM QUICKLY TEMPERED

Initial enthusiasm in Washington about China's shift was quickly tempered by its assertion on Sunday that any changes in the yuan's value would be gradual and modest.

U.S. Democratic Senator Charles Schumer, who has led a congressional charge against China, said on Sunday that Beijing's gradual approach to lifting its currency peg amounted to "backing off" its promises. [ID:nN20272880]

Still, on Monday the yuan rose by the most of any day since its landmark revaluation in 2005, climbing 0.42 percent to 6.7976 to the dollar.

If Beijing allows a sustained rise in the yuan, Obama may be able to cool anti-China sentiment in Congress, where Democrats and Republicans want to punish Beijing to show voters before November elections that they are protecting U.S. jobs.

Obama will otherwise come under increasing pressure to formally label China a currency manipulator, a decision that was delayed in April but which the administration has promised to review again after the G20 summit. (Writing by Don Durfee, Editing by Ron Popeski)