Clinton urges calm after China-Japan row at summit

HANOI (Reuters) - The premiers of China and Japan met at an Asian regional summit in a bid to defuse a territorial dispute on Saturday, while the United States urged Asia's two big economies to cool the standoff and proposed three-way talks.

Expectations of a bilateral talk between Chinese Premier Wen Jiabao and Japanese Prime Minister Naoto Kan were dashed on Friday when China canceled it, blaming Japan for "damaging the atmosphere" at the Asia-Pacific summit in Hanoi by raising the issue of the disputed Diaoyu islands, called Senkaku in Japanese.

A Japanese official, however, said the two leaders subsequently held an "informal" 10-minute meeting on the summit sidelines on Saturday in a seemingly positive step.

"I am confident that we can maintain a relationship in which we can cooperate in a meaningful manner," Kan told a news conference.

U.S. Secretary of State Hillary Clinton, who met her Chinese counterpart, Yang Jiechi, in Hanoi, urged calm on both sides, and offered to host trilateral talks to bring relations back on an even keel.

"We have certainly encouraged both Japan and China to seek peaceful resolution of any disagreements," Clinton told a news conference. "It is in all of our interest for China and Japan to have stable, peaceful relations."

China and Japan have long-locked horns over sovereignty claims in the oil-and-gas rich East China Sea but such disputes have rarely damaged commercial ties between the economic giants.

Clinton, in Vietnam for the first U.S. participation in an East Asia Summit (EAS), also got assurances from China over its policy on exporting rare earth minerals that it wished to be a "reliable supplier."

"Minister Yang clarified China has no intention of withholding these minerals from the market," she said.

She said the United States, Japan, Europe and other allies would search for more sources of supply of he mineral, vital in the manufacture of various high-tech products.

"So, although we are pleased by the clarification we have received from the Chinese government, we still think that the world as a whole needs to find alternatives."

CURRENCIES, MYANMAR

With a G20 leader's summit coming up in November in which currency tension is likely to loom large, some ASEAN countries addressed the sinking value of the U.S. dollar, which has led to a sharp appreciation in the value of most of the region's currencies and eroded the competitiveness of its exports.

"The United States is looking for ways to resolve internal economic problems but the way they are doing it is affecting currencies in our region," said top Thai trade official Kiat Sitheearmorn. Export-reliant Thailand's currency, the baht, has appreciated about 11 percent over the past year.

The China-Japan row deflected attention from regional issues like upcoming polls in military-ruled Myanmar, though leaders such as Australian Prime Minister Julia Gillard demanded the vote be free and called for the release of political prisoners.

Critics say the November 7 election will be a sham as long as more than 2,000 political prisoners, including pro-democracy leader Aung San Suu Kyi, remain in detention. Suu Kyi's party won Myanmar's last polls in 1990 but the military ignored the result.

The United States has stepped up Asian diplomacy under the Obama administration and is worried about being excluded from groupings such as the EAS as China expands its diplomatic and economic presence.

But the summit this year, the fifth since the group's founding in 2005, has been overshadowed by the row between China and Japan.

The dispute caused unease among some members of the Association of South East Asian Nations (ASEAN) taking part in a summit that preceded the broader regional gathering.

"You can feel the tension between China and Japan," said a southeast Asian diplomat. "No one wants to take sides."

Four ASEAN members -- Brunei, Malaysia, the Philippines and Vietnam -- have long-running disagreements with Beijing over parts of the South China Sea.

Sovereignty disputes over the South China Sea have emerged in recent months as a point of convergence as Hanoi, Washington and others seek to counterbalance China's growing military might and increasingly assertive behavior.

In July, China reacted with vitriol when nearly half of the participants at a regional security meeting of foreign ministers under the ASEAN banner, including Clinton, raised concerns about maritime security and the South China Sea.

(Additional reporting by Ambika Ahuja, John Ruwitch; Writing by James Pomfret; Editing by Robert Birsel)