UPDATE 2-US says yuan undervalued but China not manipulator

(Adds statement from Sen. Schumer in paragraph 7)

By David Lawder

WASHINGTON, May 15 (Reuters) - The U.S. Treasury Department warned on Thursday that China's yuan currency was still "substantially undervalued" but it said Beijing was not manipulating its currency for trade gains.

The Treasury's semiannual report to Congress on the exchange rate policies of major U.S. trade partners noted that China had recently allowed the yuan to rise more quickly against the dollar, and it urged Beijing to maintain a faster pace to help curb inflation.

"The recent acceleration in appreciation is a welcome development. However, overall gains remain insufficient," the Treasury said in the report.

"The recent faster pace of appreciation should be maintained, as the currency remains substantially undervalued, particularly on a real effective basis and upward market pressures on the currency remain strong," it said.

While the yuan had risen 18.4 percent against the dollar from July 2005 through mid-April 2008, it rose more modestly against the Japanese yen and actually depreciated against the euro, the Treasury said.

FOREX POLITICS

The Treasury, which concluded that no major U.S. trade partner was manipulating its currency, ignored pressure from Congress for bolder action against China.