G8 sees downside economy risks, prods China on yuan

By Yoko Nishikawa and Alan Wheatley

TOYAKO, Japan (Reuters) - The Group of Eight industrial nations expressed strong concern on Tuesday about sky-high food and oil prices, which they said posed risks for a global economy under serious financial strain.

In a statement released on the second day of the group's three-day annual summit, the G8 made a veiled call for China to let the yuan's tightly controlled exchange rate appreciate to help reduce global financial imbalances.

"In some emerging economies with large and growing current account surpluses, it is crucial that their effective exchange rates move so that necessary adjustment will occur," the G8 said in the statement, without naming any country.

The inclusion of the word "some" marked a subtle difference in wording from last year's G8 communique, which referred to the need for emerging economies in general to let their effective, or trade-weighted, exchange rates rise in value.

The G8 made no other mention of currencies in its communique, but a senior U.S. official said President George W. Bush restated his support for a strong dollar during the talks.

"The president of course reaffirmed his interest in a strong dollar, and his commitment to a strong dollar," Dan Price, Bush's assistant for international economic affairs, told reporters. "There was a general discussion of exchange rates."

Financial markets, which had low expectations of the G8 meeting, shrugged off the comments.

"As for currencies, there were opinions that cooperation among not only G8 countries but also with emerging economies is needed. But there was no specific talk on foreign exchange market movements," a Japanese official said.

DOWNSIDE RISKS

The leaders of Japan, Britain, Canada, Germany, France, Italy, Russia and the United States said they remained positive about the long-term resilience of their economies and the prospects for global growth.

Emerging markets in particular were still growing strongly.

"However, the world economy is now facing uncertainty and downside risks persist. Among others, we express our strong concern about elevated commodity prices, especially of oil and food, since they pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable and increase global inflationary pressure," the G8 said.

Oil has retreated below $142 from a record-breaking rally that lifted prices to an all-time high of $145.85 last week, but it is still up almost 50 percent this year.

"Concerted efforts are needed to address the underlying causes for the benefit of all," the G8 said.

DOHA PLEA