UPDATE 1-China's FX reserves are diversified head

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BEIJING, July 17 (Reuters) - China’s $2 trillion stockpile of foreign exchange reserves, the world’s largest, is diversified despite the vast amount held in U.S. Treasuries, the Chinese central bank chief said on Friday.

Zhou Xiaochuan’s apparent satisfaction with China’s current dollar-heavy investment portfolio contrasted with calls he has made this year for a new super-sovereign currency to end the greenback’s dominance.

“Despite the $800 billion in U.S. Treasuries, it is a diversified portfolio overall,” he told a forum in Beijing, referring to an amount that had been mentioned in a question. “Some parts may rise, some parts may fall, but through portfolio management you will not make big losses.”

The composition of China’s official foreign exchange reserves is a state secret. Analysts estimate that up to 70 percent of the $2.13 trillion is invested in dollar-denominated assets, mainly in U.S. government debt.

Zhou defended China’s accumulation of massive forex holdings, saying that it was the result of the government’s deliberate decision to promote export-led growth and that the growth of reserves had been anticipated.

“Generally speaking, it is not bad to have (reserves) as long as there are reasonable returns,” he said.

He was unapologetic in saying that the export focus had sped up China’s development and created jobs, but said Beijing was now trying to stimulate more domestic demand. Such a fundamental shift in the country’s economic model would take time.

A cultural preference for savings and a production base geared to external markets were deeply rooted factors, and yuan appreciation by itself would solve nothing, Zhou said.

“The Americans are saying China should increase domestic spending and China should allow the yuan to appreciate, that the two measures are enough,” he said. “But in my view, it is more complicated than that.”

Excessive spending in the United States and excessive saving in China have been faulted as the core global economic imbalance at the root of the financial crisis. Some have criticised China for maintaining an undervalued yuan, saying this has made its exports artificially cheap and deterred its consumers from buying foreign-made goods.

“As for the global imbalance, apart from the exchange rate, there are other factors,” Zhou said.

Sino-U.S. talks at the end of this month will discuss ways to reduce global imbalances with a view to seeking consensus, he said. The Strategic and Economic Dialogue between the two powers is set for July 27-28 in Washington.

The yuan has appreciated about 20 percent against the dollar since it was lifted from a formal peg to the U.S. currency in 2005, but it has been returned to a virtual peg since mid-2008 as a defence against the financial crisis

Asked about his idea for a super-sovereign currency, Zhou said that any new thing cannot be expected to play a big role immediately.

He caused a stir in financial markets in March when he first suggested that a beefed-up version of the International Monetary Fund’s Special Drawing Right should become the global reserve currency over time. (Reporting by Zhou Xin and Simon Rabinovitch; Editing by Victoria Main)