(Recasts with Wu's visit to Capitol Hill; adds quotes, background)

By Paul Eckert and Glenn Somerville

WASHINGTON (Reuters) - The United States and China announced deals Wednesday to increase flights to China and ease U.S. entry into its financial sector but made no headway on the thorny issue of speeding up Chinese currency reforms.

China's reluctance to take more dramatic action to redress a huge trade imbalance provoked anger on Capitol Hill, where lawmakers who met Chinese officials said afterward they will move ahead with proposals to slap tariffs on Chinese imports.

The lawmakers' negative reaction overshadowed U.S. Treasury Secretary Henry Paulson's claim of "tangible results." China's Vice Premier Wu Yi argued U.S-China relations were "complicated" and needed careful handling.

"It calls for direct consultation and dialogue between us, instead of easy resort to threat or sanctions," Wu said after two days of closed door talks with Bush administration officials.

But the chairman of the powerful House Ways and Means Committee, New York Democrat Charles Rangel, said after a meeting between Wu and committee members that "We're moving forward" on legislation.

Rangel favors a bill crafted by Rep. Tim Ryan, an Ohio Democrat, and Rep. Duncan Hunter, a California Republican, to let the Commerce Department levy duties on Chinese goods to offset the "subsidy" effect of China's exchange rate policies.

TIME RUNNING OUT

The decision by Rangel, who Paulson had actively courted, shows how swiftly time is running out in the U.S. Treasury chief's effort to show that persuasion is sufficient to get China to permit its yuan currency to appreciate more quickly.

U.S. lawmakers contend an undervalued yuan gives China an unfair trade edge.

The head of China's central bank, Zhou Xiaochuan, said China had pressures of its own to deal with that made it hard to speed up currency reform. "They may think that we can accelerate the speed of reform, but we think that we already try our best, and domestically we have pressure to slow down," Zhou told reporters after meeting the lawmakers.

Wu, Zhou and other top Chinese officials went to Capitol Hill after concluding the second leg of a "strategic economic dialogue" launched last year with Washington. China's currency policy has been in the forefront of those talks.

In July 2005, China abandoned an 11-year-old practice of holding the yuan fixed against the dollar and revalued it by 2.1 percent. But since then it has risen only a further 6 percent, frustrating U.S. legislators.

The most concrete outcome from the high-level talks was a deal announced Wednesday that commits China to remove a bar on new foreign securities firms and resume issuing licenses for securities companies, including joint ventures, in the second half of 2007.

Paulson, who chaired Goldman Sachs before becoming Treasury chief last July, has made gaining greater access to the Chinese financial sector a key objective. He visited Shanghai earlier this year to stress the need for China to develop its capital markets to accommodate a more-flexible currency.

The two sides also agreed on a new aviation pact that U.S. transportation officials said will more than double the number of passenger flights between the two countries by 2012.

In the wake of reports about toxic toothpaste and contaminated pet food imports from China, U.S. officials said they stressed the safety of food and medicine imports was a "top concern" and that these discussions were being extended.

REBALANCING

China remains an emerging-market economy only partly driven by free-market forces, but its cheap labor force and exporting prowess have enabled it to become the world's fourth-largest economy, behind the United States, Japan and Germany.

In the process, Chinese citizens have flocked to trade in stocks of fast-growing companies, raising concerns about a potential "bubble" in prices. Paulson declined to respond to a reporter's question on whether he thought Chinese stock values were inflated, saying he never comments on the topic.

If Chinese stocks were to collapse, the spillover could be felt worldwide, including in U.S. stock markets where prices are flying high.

Speaking via satellite to a conference in Madrid Wednesday, former Federal Reserve Chairman Alan Greenspan predicted a "dramatic" drop in the Chinese stock market.

"It is clearly unsustainable," Greenspan said. "There is going to be a dramatic contraction at some point." (Additional reporting by Jason Subler, David Lawder and Doug Palmer in Washington and Jason Webb in Madrid)

AlertNet news is provided by