The euro rebounded on Thursday after China reaffirmed its long-term aim of diversifying currency holdings away from the dollar and denied it was reviewing its holdings of euro sovereign bonds.

The People's Bank of China said in a statement that a Financial Times report that the State Administration of Foreign Exchange (SAFE) was concerned about its exposure to the euro zone debt crisis was groundless.

The Chinese central bank said Europe would remain one of China's main investment markets and Beijing would support actions to help the European Union resolve its debt crisis.

The 16-nation single currency, which has lost more than 8 percent against the dollar this month, rose more than 1 percent after falling to a day low of $1.2154 on the FT report.

A Chinese government official earlier told Reuters that Beijing's policy of diversifying its $2.4 trillion foreign exchange reserves will not change, soothing nervous markets.

Separately, the head of China's $300 billion sovereign wealth fund, China Investment Corp, told Xinhua news agency in an interview that the Greek debt crisis would not have a big impact on China's overseas investments.

In Europe, U.S. Treasury Secretary Timothy Geithner took his appeal for swift action to calm markets to Germany, the key player that stunned investors last week with its ban on some speculative trades.

During a visit to London on Wednesday, Geithner told Europeans that markets wanted to see the euro zone activate its $1 trillion emergency plan designed to stabilize the currency plagued by fears that a Greek-style debt crisis could widen.

TOP PAYMASTER

Geithner held dinner talks with European Central Bank President Jean-Claude Trichet in Frankfurt on Wednesday. Neither side commented on the discussions.

On Thursday, he was to meet ECB governing council hawk Axel Weber, head of Germany's powerful Bundesbank, before talks in Berlin with Finance Minister Wolfgang Schaeuble.

Washington has grown increasingly concerned that the effects of the Greek fiscal blow-out could spread well beyond Europe, with banks prone to a similar confidence crisis that roiled world markets during the 2007-2009 financial crisis.

Germany, Europe's biggest economy and its main paymaster, holds the key to any successful EU-wide action.

Its initial reluctance to bail out Athens was blamed for the EU's slow response once Greece's debt blow-out began morphing into a crisis of confidence in the euro zone as a whole.

Weber, a leading advocate of fiscal and monetary conservatism on the ECB's policy council, has long warned about long-term pitfalls of extraordinary steps taken to fight financial crises and distanced himself from the ECB's move to buy government bonds to stabilize markets and support the $1 trillion emergency plan.

Schaeuble, in turn, angered his EU partners by going it alone and signing off on a ban on so-called naked short selling of Germany's top financial stocks, euro zone government debt and credit default insurance contracts on that debt.

Berlin blames speculators for aggravating the debt crisis with aggressive bets against the euro, but the move was seen as largely symbolic because it was isolated and most of the targeted trades took place outside of Germany's jurisdiction.

Geithner, who will hold a joint news conference with Schaeuble before heading back to Washington, may repeat his call for a globally consistent approach to financial reform, seemingly a swipe at Germany's single-handed action.

Yet despite criticism, Germany looks determined to push through with the clampdown and a finance ministry document showed earlier this week it was even considering widening the ban.

AUSTERITY CLUB

Berlin signed off on a 110 billion euro Greek rescue and the $1 trillion emergency scheme only in return for pledges of drastic spending cuts from potential beneficiaries.

Greece, Portugal, Spain and Italy have all agreed to push through with multi-billion euro savings despite fierce opposition from trade unions and sometimes violent street protests.

The Spanish parliament was due to hold a tight vote on government austerity plans on Thursday while French unions were staging a day of action against government proposals, still to be spelled out in detail, to increase the retirement age.

Italian Prime Minister Silvio Berlusconi sought to support the euro on Wednesday with a vigorous defense of his government's 25 billion euro ($30.65 billion) austerity package, approved by his cabinet in an emergency decree.

The sacrifices required are indispensable to save the euro, Berlusconi said. For years, Italy -- like many countries in Europe -- lived above its means. We are all in the same boat.

(Additional reporting by Aileen Wang in Beijing; Writing by Paul Taylor and Tomasz Janowski; Editing by Mike Peacock)

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