WRAPUP 1-U.S., China spar before hotly awaited forex report

* U.S., China spar over currency policy

* U.S. Treasury set to issue currency report on Thursday

* China likely to be cleared of currency manipulation

By Glenn Somerville

WASHINGTON, May 14 (Reuters) - U.S. and Chinese officials sparred on Wednesday over China's currency practices a day before release of a closely watched U.S. Treasury report likely to renew U.S. lawmakers' anger at Beijing's tactics.

Treasury is set to release a semiannual report on currency policies of key trade partners in late afternoon on Thursday. It is likely to again say China is not deliberately manipulating the renminbi, or yuan, for unfair trade advantage.

But restive U.S. lawmakers, who threatened action when China was cleared in the last report on Dec. 19, are virtually certain to take up the fight by renewing calls to pass laws that would offer sharper tools for forcing Beijing to act.

In Washington's current political season, soaring trade imbalances have also drawn the attention of Democratic presidential contenders Sen. Hillary Clinton and Sen. Barack Obama, both of whom have called for stronger U.S. action to deal with a number of China trade concerns, including currency.

Beijing is acutely aware of the heated atmosphere, and on Wednesday its ambassador to the United States, Zhou Wenzhong, appealed for some understanding of what China has done since July 2005 when it ended a controversial practice of pegging its yuan's value to the U.S. dollar.

"The renminbi has appreciated quite a bit ... it's already 19 percent, almost 19 percent (higher) as compared to back in July 2005," Zhou said. "There is only so much of this we can take, so you need to give us some time."

Zhou was speaking at a day-long symposium organized by the U.S. Chamber of Commerce, where the U.S. Treasury Department's special envoy to China, Alan Holmer, indicated the United States was not about to stop pushing.

Holmer acknowledged the pace of yuan appreciation has sped up since last fall but indicated it was not enough. Beijing has let the currency appreciate largely to try to curb inflation by making imports less expensive rather than out of any wish to slow its exports.

"We urge China's leaders to continue this accelerated pace of appreciation," Holmer said. U.S. business groups claim the yuan is undervalued as much as 40 percent and blame it for the record $256.3-billion trade deficit the United States incurred with China last year as well as for the loss of hundreds of thousands of American factory jobs.

That has been fertile ground for Clinton and Obama as they campaigned in hard-hit industrial states for voter support, and Zhou acknowledged China's unease at the topic.

"Many friends advise don't take this rhetoric too seriously, but of course we hope, we wish this rhetoric would not be made. But of course, what's more important is the policy, so we'll see," Zhou said.

The Treasury in December warned that "substantial undervaluation" of China's currency posed a risk to the world economy and to itself. Holmer said on Wednesday that China's position as one of the world's top trading nations meant it had a responsibility to consider the consequences of its policies.