UPDATE 2-Geithner: global economy can handle Europe strains

* Global recovery makes it easier to deal with Europe

* U.S. dollar rising due to confidence in U.S. economy

* U.S. to tackle deficit issue seriously

(Adds details, background)

SHANGHAI, May 22 (Reuters) - U.S. Treasury Secretary Timothy Geithner said a strengthened global economy is now in better shape to handle the strains emanating from Europe's crisis, China's Xinhua news agency reported on Saturday.

"You see some of the challenges in Europe now. But I think we are in a much stronger position to manage those challenges," he told Xinhua in an interview in Washington before heading to Beijing for high-level economic discussions.

Geithner also said the dollar was on the rise because confidence was growing about the strength of the U.S. recovery.

The U.S. Treasury chief was due to arrive in Beijing on Sunday for meetings of the Strategic and Economic Dialogue, co-chairing the U.S. side with Secretary of State Hillary Clinton.

The economic component of the Monday and Tuesday talks are expected to explore ways to better balance the two countries' $400-billion trade ties, steering clear of an open clash about the yuan's peg to the dollar.

The United States still has the world's largest economy and China has the fastest-growing one, so Geithner said cooperation between the two was vital for healthy global growth.

"China and the United States are doing what we need to do to help contribute to a broader global economic recovery," he said.

The U.S. administration is going to tackle the deficit situation very seriously, Geithner told Xinhua. As he tries to reinvigorate the U.S. economy, President Barack Obama has set a goal of doubling exports in five years, which can be met only with a big increase in sales to China.

Geithner said both the U.S. and Chinese economies have undergone a major transformation in recent years and struck a theme that he is expected to pursue by praising rising levels of domestic consumption in China.

The Obama administration has been urging China to rely less on exports, and more on increased consumer spending at home, to fuel its economic growth. Geithner also noted that the U.S. economy's expansion now was being led by investment and exports, rather than consumer spending, and that savings were rising.

EUROPE CONCERN

Europe's debt crisis has become an issue of concern, partly for fear that it might spread to other regions but also because it means a diminished market for exports from countries like China.

That has led to speculation that Beijing will be less likely to let its yuan currency rise in value, as the Obama administration was urging, since the euro's decline has made Chinese products more expensive in its top export market.

A $1 trillion safety net, provided by EU nations and the International Monetary Fund to stabilise the euro zone -- following a rescue of debt-ridden Greece -- has not stopped the bloc's currency tumbling.

Several euro zone governments have followed Athens in announcing or planning austerity measures to shore up their credit ratings and avoid having to seek a Greek-style bailout.

But doubts remain about their ability to push through savage spending cuts in the teeth of public opposition.

Geithner added last-minute stops in Britain and Germany to his itinerary when the S&ED talks wrap up on Tuesday to discuss conditions with his counterparts in London and Berlin and with European Central Bank President Jean-Claude Trichet in Frankfurt. (additional reporting by Glenn Somerville) (Reporting by Farah Master; Editing by Mike Peacock)