UPDATE 1-Money flows to emerging mkts to hit $1 trln - IIF

* Rising emerging market capital flows pose new dangers

* Emerging markets should allow their currencies to rise (Adds details from news conference)

WASHINGTON, Jan 24 (Reuters) - Private money pouring into emerging markets could reach more than $1 trillion by 2012, a global bank group said on Monday, warning that curbing the effects of capital flows was becoming increasingly difficult.

The Institute of International Finance, which represents more than 430 financial institutions in 70 countries, estimated that net private capital flows to emerging markets would hit $960 billion in 2011.

It also revised up its October capital inflows projection for 2010 by $83 billion to $908 billion, a 50 percent increase over 2009 levels.

The global credit crisis has dramatically changed the economic landscape, with emerging market economies now regarded as less-riskier places to invest than advanced economies still recovering from the financial crisis.

IIF chief economist Philip Suttle told a news conference that although inflows were growing, the ratio of flows to emerging market gross domestic product was still well below levels seen in 2005-2007.

Still, the surge of private capital had complicated policies in emerging markets, which are worried by the potential for inflation, asset bubbles and a loss of export competitiveness.

Some countries, such as Brazil, which has one of the world's most overvalued currencies, Chile and Colombia, have imposed capital controls to slow the flow of hot money.

Suttle said many emerging market countries were choosing to accept a higher rate of inflation when in his view they ought to allow their currencies to appreciate.

He said this was a "worrying" trend and that emerging markets as a bloc should coordinate and agree "to appreciate their currencies a little more and take more of the necessary adjustment on the nominal exchange rate side."

Many emerging market countries are grappling with uncomfortably high inflation, both from capital flows and rising commodity prices.

"These currency adjustments can be quite painful if they happen quickly over a short period of time, and there is really no way around this. It is in a sense the price of success for the emerging world," Suttle added.

The Washington-based IIF said while the surge of private money had picked up across all regions, money flows into China had reached a record of $227 billion in 2010.

It said equity investment inflows made up the bulk of private money flows in 2010. But growth in portfolio equity and bank inflows was likely to slow this year and next as equity markets weaken and capital controls slow credit growth in emerging market economies, it added.

"With favorable conditions in most emerging markets likely to persist, net private capital flows are projected to increase to just over $1 trillion in 2012," the IIF said in an updated report on private capital flows. (Reporting by Lesley Wroughton; Editing by Andrew Hay)