PREVIEW-Dollar discomfort thrust onstage for Italy summit

* Summit expected to voice cautious optimism on economy

* Exit strategy remains a flashpoint -sources say

* China wants global reserve currency alternative discussed

* Officials play down reserve currency debate

* Italy urges global conduct charter in business/finance

By Brian Love

PARIS, July 5 (Reuters) - World leaders are bound to express the hope that the worst of the global economic crisis is passing when they meet this week, but they are now under pressure, too, to manage a Chinese challenge to dollar supremacy.

Beijing, which has floated the idea of an alternative to the dollar as world reserve currency, wants the matter -- sensitive in financial markets wary of risks to U.S. asset values -- broached at a July 8-10 summit in Italy, officials say.

Leaders from the Western economic powers and Russia meet in Italy on Wednesday and are joined the day after by leaders from China, India, Brazil and others to discuss global challenges -- chief among them the worst recession in living memory. (Click for agenda on [ID:nLU637990] all items [ID:nL2198823])

German Chancellor Angela Merkel says not to expect any grand initiatives in Italy, largely because governments are already pumping trillions of dollars into bank stabilisation and economic stimulus, and also because they have their eyes on a bigger G20 summit in the U.S. city of Pittsburgh in September.

The best the Italians can expect from the meetings in the quake-hit town of L'Aquila, economists say, is a batch of statements that commit the old and new economic powers to keep working together to contain the crisis and, once that is done, envisage new rules for a better regulated global economy.

Carl Weinberg of High Frequency Economics in New York says genuine coordination beyond carefully negotiated communiques is hard to have when governments are spending so much money to tend to their own voters and industries right now.

"In a time when fiscal budgets are stretched and deficits are reaching historic proportions, few governments will be able to find the cash to support foreigners' standards of living. Resources are need to buy jobs at home," he said.

STORM PASSING?