* Geithner urges Brazil to lobby China on yuan
* U.S. and Brazil see common ground for G20 agenda
* Both sides skeptical of French commodity proposal
(Recasts, adds Geithner quote, details)
By Raymond Colitt and Ana Nicolaci da Costa
BRASILIA, Feb 7 The United States and Brazil
will pressure countries that keep their currencies undervalued,
U.S. Treasury Secretary Timothy Geithner said on Monday,
reinforcing an emerging alliance between the Western
Hemisphere's two biggest economies at the expense of China.
Geithner cast his one-day visit to Brazil as part of a
broader effort by Washington to work with allies to eliminate
economic distortions left over from the 2008-09 financial
crisis. Both sides also used the occasion to forge a common
stance on a French proposal to regulate commodity prices that
Washington and Brasilia view with skepticism.
Geithner avoided mentioning China in public. Yet in private
he urged Brazil to do more to lobby China to let its currency
appreciate, arguing that a weak yuan was just as much a problem
for Brazil as it is for the United States, according to a
Brazilian official with direct knowledge of the discussions.
New President Dilma Rousseff has identified the undervalued
yuan as a major threat to Brazil's economic boom. A flood of
cheap Chinese imports, combined with a surge in the value of
the Brazilian currency, has eroded Brazil's trade surplus while
causing the loss of thousands of manufacturing jobs.
After meeting Rousseff in the capital Brasilia, Geithner
said the United States and Brazil would "work together on the
global stage to build a more balanced and more stable, stronger
multilateral economic system."
Brazil-China trade frictions: [ID:nN02234878]
Brazil industry struggles with China: [ID:nN18117624]
Brazilian exports to China: r.reuters.com/kuw77r
Facts on Brazil-China trade: [ID:nN02239851]
Rousseff and Geithner also agreed to work to strengthen
economic ties, the latest sign of a renewed willingness by both
sides to improve relations that were chilly for most of the
past year under previous President Luiz Inacio Lula da Silva.
Since taking office on Jan. 1, Rousseff has sought closer
ties with Washington in part out of the hope that the combined
clout of the countries will put more pressure on China to let
the yuan appreciate faster, advisers say.
Geithner's visit was designed to lay the groundwork for the
Feb. 18-19 meeting of finance ministers and central bank chiefs
at the G20 group of nations in France, as well as a trip by
U.S. President Barack Obama to Brazil in March.
Brazil's economy grew more than 7 percent last year but is
expected to expand at a slower pace in 2011 -- due in part to
struggles in its manufacturing sector. Finance Minister Guido
Mantega has decried a "currency war" as countries keep their
currencies artificially weak and try to export their way out of
the global crisis. For details, see [ID:nN18117624]
When Geithner broached the Chinese currency issue in their
meeting, Mantega said Brazil "was against manipulating exchange
rates," a Brazilian government source told Reuters.
Recent monetary expansion by the U.S. Federal Reserve has
also helped steer more capital inflows to Brazil, as investors
in the developed world chase high yields in fast-growing
emerging markets. Some of the distortions are also of Brazil's
making due to high government spending and interest rates.
U.S. "THRILLED" WITH CHANGE IN RELATIONSHIP
Yet the focus on China signals that Brazil is likely, at
least for now, to work with the Washington on common causes.
"The United States is thrilled with the language the
Brazilian government has been using in regards to global
economic issues, in particular, regarding China," said Mauricio
Cardenas, director of the Latin America studies program at the
Brookings Institution, a Washington think tank.
Rousseff is due to visit Beijing in April where she will
raise the issue of the undervalued yuan, officials say.
Geithner said that countries such as Brazil that face an
"out-sized burden" due to their strong currencies "may need to
adopt carefully designed macroprudential measures" -- a
reference to capital controls and banking regulations that
Brazil has recently implemented to ease strong inflows.
He said such measures had to be combined with fiscal
reforms -- a reference to a large cut in public spending that
Rousseff's government is expected to announce later this week.
Rousseff also wants to work with Washington against
France's proposal to tighten global commodity market
regulations, a move it fears could stifle output by major food
producers like Brazil and the United States. [ID:nLDE70N1SC]
Rousseff told Geithner that "commodities shouldn't be
blamed for imbalances in the global economy," according to a
Lael Brainard, a U.S. Treasury undersecretary who
accompanied Geithner on the trip, said Brazil and the United
States share common ground on the G20 commodities agenda and
want to keep the focus on improving market functioning.
(Writing by Brian Winter and Todd Benson; Additional reporting
by Guillermo Parra-Bernal in Sao Paulo and David Lawder and
Glenn Somerville in Washington; Editing by Kenneth Barry and