By Heather Scott

WASHINGTON (MNI) - The U.S. Treasury said Thursday it has not found any major trading partner guilty of manipulating its currency, though it did conclude that China's currency remains undervalued.

In its semi-annual report to Congress on International Economic and Exchange Rate Policies, the Treasury said, "For the period covered in this Report, January 1, 2009 to June 30, 2009, Treasury has concluded that no major trading partner of the United States met the standards identified in Section 2004 of the Act."

However, Treasury said China must continue to reform its economy to move away from the dependence on export-led growth, to bring its economy and its currency into better balance.

"The stability of the renminbi against the dollar over the past year, the real effective depreciation that has taken place during the reporting period, continuing productivity growth in the Chinese economy, and the acceleration of foreign reserve accumulation this year all suggest that the renminbi remains undervalued," the report said.

"Renminbi adjustment alone, however, will not be sufficient to reduce materially China's current account surplus or achieve more balanced, sustained Chinese growth," Treasury said. "For this, China must continue to reform its development strategy away from export and investment-led growth."

And while Treasury notes Beijing's commitment to reforms, the report said, "While some progress has been made, household consumption growth remains near or below the growth rate of GDP" which means that as a share of GDP it is "well below average for an economy of China's size."

Treasury repeated its position that "moving to a more flexible exchange rate will give monetary authorities greater scope to maintain price stability" as China's economy recovers.

In it's review of economic policies, the report noted that the "forceful actions" implemented by most countries have "worked" and "financial conditions in the United States and around the world have improved dramatically and signs of an economic recovery have begun to emerge."

In addition, Treasury said, "Global current account imbalances have fallen sharply during the crisis from a peak of 5.9% of world GDP to an IMF-estimated 3.6% in 2009. The U.S. current account deficit has fallen from a peak of 6.5% of GDP in the fourth quarter of 2005 to 2.9% of GDP in the second quarter of 2009."

** Market News International Washington Bureau: 202-371-2121 **