RPT-Dollar discomfort thrust onstage for Italy summit

(Repeat of a story originally filed at 1945 gmt Sunday)

* Summit expected to voice cautious optimism on economy

* Crisis exit strategy remains a flashpoint, sources say

* China wants global reserve currency discussion

* 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 under pressure, too, to manage a Chinese challenge to decades of dollar supremacy.

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

With so much of its reserves invested in U.S. assets, BeiJing needs to ensure that its longer-term goals do not spook markets in the short term and hit the dollar's value -- a point Vice Foreign Minister He Yafei made in Rome on Sunday.

"The U.S. dollar is still the most important and major reserve currency of the day, and we believe that that situation will continue for many years to come," He said.

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 on the economy, 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, are 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.