Market turmoil, exchange rates on G7 radar

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WASHINGTON, Oct 20 (AFP): Finance chiefs from the world's richest nations met yesterday amid fears of a slowdown in global economic growth which have been stoked by financial market turbulence.
US Treasury Secretary Henry Paulson hosted a meeting of Group of Seven finance ministers and central bankers in Washington ahead of weekend sessions of the International Monetary Fund and the World Bank.
Aside from the financial market turmoil, analysts said officials would also likely debate tensions over exchange rates.
The G7, grouping Britain, Canada, France, Germany, Italy, Japan and the United States, will issue a closely-watched communique later Friday on the global economy.
Analysts do not foresee any signal from the meeting that would affect current exchange rate trends, notably a steady slide in the dollar against the euro, which has unsettled eurozone officials, as well as what is seen as an unfairly undervalued Chinese yuan.
Senior Treasury officials have said that financial market turmoil would take up a good part of the G7 agenda, particularly as the IMF Wednesday slashed its 2008 global economic forecast.
The IMF in a twice-yearly survey warned that turbulence sparked by a meltdown in the US subprime-or high-risk-mortgage market could crimp global growth.
G7 participants will likely find it easier to agree a common stance on market instability rather than on currencies, trade imbalances and exchange rate risks.
Some economists said exchange rate criticism could be aimed at China rather than the United States, despite the euro's record spike against the dollar and European pressure for Washington to boost the greenback.
"Part of the focus on the renmimbi (yuan) comes because the G7 is split on the dangers of the euro's recent rise against the dollar while all the members of the powerful bloc of economies
can agree that China must allow its exchange rate to rise faster, particularly against the euro," Robert Brusca at FAO Economics said in a briefing note.
The euro hit a new high of 1.4319 dollars Friday on concerns about US economic momentum.
The deputy governor of China's central bank, Wu Xiaoling, reiterated Friday that revaluing the yuan currency alone is not the answer to rebalancing trade.
"Moving the exchange rates in the absence of economic restructuring policies will hurt China," she said.
US lawmakers have criticised Beijing for not allowing the yuan to appreciate further amid America's gaping trade deficit with China.
Fears are also mounting in European capitals that the strong euro could crimp exports and economic growth in the 13-nation eurozone.
Anxiety is also growing in the United States. US industrial leaders have voiced fear of a prolonged weakness in the dollar despite the healthy boost it gives to exports.
While a weak dollar can spur exports, it also makes foreign goods and products-including crude oil-more pricey for Americans.
The dollar is trading at its lowest level in decades against the British pound, the Canadian dollar and other currencies.
Analysts do not expect the G7 communique to openly criticise US or European handling of currencies.
And the size of the global foreign exchange markets far dwarfs any amount of money any one government could muster for a market intervention, economists say.
Much more likely, as outlined by Treasury officials, are G7 references to financial market uncertainty.
Global stock markets were rattled in August by fears linked to the trillion-dollar US mortgage market amid a widespread housing market downturn.
Market angst deepened after several large international banks revealed sizeable losses tied to their US mortgage investments which triggered a widespread credit squeeze. Analysts say it's unclear if the financial system is fully out of the woods yet.