UPDATE 1-Senator urges Obama call China currency manipulator

(Adds background)

WASHINGTON, Feb 3 (Reuters) - President Barack Obama should formally label China a currency manipulator to get Beijing’s attention that it needs to raise the value of its yuan, a top U.S. senator said on Wednesday.

“China is a big beneficiary of international trade, yet it fails to allow its currency to float freely,” Senator Charles Grassley, an Iowa Republican, said in a statement, noting he had criticized former President George W. Bush for repeatedly deciding not to label Beijing a currency manipulator.

“President Obama has the opportunity to change course. His administration can label China a currency manipulator in its upcoming biannual report ... Maybe that will finally get China’s attention and lead to a more level playing field for U.S. exporters,” Grassley said.

U.S. manufacturers complain that China’s undervalued currency effectively subsidizes Chinese exports and inflates the price of foreign goods in China’s market.

The U.S. Treasury Department is required by law by every six month to determine whether any country is manipulating its currency to gain an unfair trade advantage.

Obama criticized Bush for failing to label China as a currency manipulator but so for has decided twice against doing that himself. The next report is due in mid-April.

“I gave this administration’s diplomatic efforts the benefit of the doubt, but so far the Strategic and Economic Dialogue with China hasn’t produced results,” Grassley said.

In a meeting with Democratic senators on Wednesday, Obama acknowledged concerns about China’s exchange rate policies.

“One of the challenges that we’ve got to address internationally is currency rates and how they match up to make sure that our goods are not artificially inflated in price and their goods are artificially deflated in price. That puts us at a huge competitive disadvantage,” Obama said.

A senior Treasury official told reporters on Wednesday he expected G7 finance ministers to discuss China’s currency practices when they met this weekend in Canada.

Reporting by Doug Palmer; Editing by Cynthia Osterman