With global economic growth waning and a credit crunch threatening, finance chiefs from rich nations were gathering on Friday to mull how to control strains in financial markets and keep expansion going.

Ahead of the Group of Seven meeting of finance ministers and central bankers, France called for more attention to be paid to the soaring value of the euro, which hit a lifetime high against the U.S. dollar on Thursday. France worries euro strength will undercut European exports and slow growth there.

But the French call found scant support in Washington, where U.S. officials stressed financial market turmoil will be the focus of the meeting between the United States, Britain, Canada, France, Germany, Italy and Japan.

Canadian Finance Minister Jim Flaherty said on Thursday common ground might be found by toughening up demands that China let its yuan currency rise in value faster, which could help ease the upward pressure on the euro.

REGULATION AN ISSUE

A closing communique late on Friday will be followed by a special "outreach" dinner with officials from countries including China, Kuwait and Saudi Arabia that operate so-called sovereign wealth funds whose unregulated and large-scale investment activities make the G7 nervous.

That sets the stage for a weekend of sessions between big and small countries when International Monetary Fund and World Bank members hold their semi-annual meetings. A key agenda item is hastening the IMF's shift toward a stiffened surveillance role over currency exchange practices.

The heightened IMF role, sought by both the United States and Europe, should give the IMF a stronger hand in pushing China toward adopting a market-based value for its yuan, which could help shrink China's mountainous trade surpluses.

In an interview with Reuters on Thursday night, Flaherty said some G7 countries might push for harsher language urging China to revalue its currency.

"I expect we'll have more pressure from the other market currency countries, especially with the euro being at a relatively high value now," Flaherty said. A high-value euro makes European exports more expensive in foreign markets while also making Chinese goods cheaper for European consumers.

Looming over the G7 gathering is worry that growth may be hampered by financial market upheaval, originating in U.S. subprime markets where lax lending standards produced a flood of spotty home loans that were packaged into securities.

"Today we have entered a period of uneasy calm," said Joaquin Almunia, the European Union's economic and monetary affairs commissioner. "Already it is clear that the economic outlook for the next two years appears less favorable than before the financial turbulence."

Central banks have been forced to pump hundreds of billions of dollars into the global financial system to keep it from seizing up. Some markets, including the market for asset-backed commercial paper, remain under severe stress.

Bank of Japan Governor Toshihiko Fukui said on Thursday after a meeting with U.S. Federal Reserve Chairman Ben Bernanke that financial markets "are slowly improving" but problems remain. "A prolonged slowdown in the U.S. housing market is a source of concern and raises uncertainty," he said.

SCALING GROWTH BACK

The IMF trimmed its estimate for global growth in 2008 to 4.8 percent from a 5.2 percent forecast made in July. It said the U.S. economy will grow just 1.9 percent next year instead of 2.8 percent and the 13-nation euro area will expand 2.1 percent instead of 2.5 percent.

"The available data suggest that the current cycle has passed," Almunia said of the European economy, citing a depreciating dollar, costlier oil and tighter credit.

With the U.S. headed into a presidential vote in 2008 and the Bush administration eager to present its economic record favorably, U.S. officials make no such concessions.

"The fundamentals of the U.S. economy remain strong even while overall growth is moderating," Treasury's under secretary for international affairs, David McCormick, said this week.

The meeting over Friday's dinner about sovereign wealth funds highlights the question whether regulatory regimes are adequate to scrutinize, approve and to some extent control massive daily flows of capital around the globe.

As much as $2.2 trillion is thought to reside in such funds, mostly accumulated through trade in oil, in the case of the Middle East, or surpluses on goods trade, like those China has been racking up.

The issue is a touchy one. When China bought a 10 percent stake worth about $3 billion in private equity firm Blackstone Group (BX.N: Quote, Profile, Research) earlier this year some U.S. lawmakers protested.

McCormick said the Bush administration, devoutly free trade, feared some countries might whip up fear of the funds' power to justify passing protectionist legislation.

"We seek to discuss the implications of these funds for an international financial system fundamentally based on the principle of private sector allocation of resources to their most efficient uses," McCormick said.

(additional reporting by Louise Egan in Ottawa, and Thomas Atkins, Swaha Pattanaik, Yoko Nishikawa and Tamawa Kadoya in Washington)

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