Merrill says China to help quell financial crisis

BEIJING (Reuters) - China will help stabilize the global financial system by maintaining its investment in U.S. treasuries and dollar-based currency portfolio, Merrill Lynch said on Tuesday.

"If China stops buying treasuries, the U.S. would stop importing from China and that would hurt China demand," Erh-Fei Liu, the head of Merrill Lynch in China, told reporters.

"And that would be a loss-loss situation," he said.

With that interdependency in mind, Premier Wen Jiabao has promised to work with other nations to deal with the crisis, but has not yet committed any of its $1.81 trillion in foreign exchange reserves -- the largest in the world -- to the task.

China says the biggest contribution it can make is to keep the world's fourth-largest economy growing strongly, and with commodity and oil prices falling, lessening the threat of inflation, growth is now the focus for policy makers.

"The top priority is now a single-minded focus on growth," said Liu.

To that end, China cut interest rates, for the second time in a month, and lowered banks' required reserves last week as part of a coordinated drive by global central banks to stop a free-fall in world financial markets.

"At the macro level, it makes sense for China to do everything possible to support the global system," said Liu.

But for corporate China, especially financial institutions, the approach will be more measured as it looks for overseas investment opportunities in the aftermath of the global share sell-off.

"It will be years away before China is ready to acquire and manage a leading global financial institution," he said.

China's state-owned banks and its sovereign wealth fund, stung by losses on earlier investments, have conspicuously kept their hands in their pockets while Japanese financial firms have bought into Wall Street's fallen or ailing giants.

($=6.83 yuan)

(Reporting by Kirby Chien; Editing by Jonathan Hopfner)