Senators said on Wednesday they were unmoved by China's steps to partly free the yuan and vowed to push forward legislation to punish a Chinese currency misalignment they say distorts trade and steals jobs.

Leading critics of China's currency policy used a Senate Finance Committee hearing focusing on U.S.-China trade to vent frustration -- already seen in world financial markets -- that Beijing's weekend promise of currency flexibility will not produce the rapid gains its trading partners would like.

They take a step forward, and then a step back. It's the same pattern we have seen for years, Democratic Senator Charles Schumer told the hearing.

He noted that the yuan rose only 0.02 percent on Wednesday, the third trading day after China's central bank said it would allow greater flexibility for the currency. That move brought the overall gain since the announcement to just 0.2 percent.

The Chinese will keep treating us like they have us on a yo-yo unless we make a serious push for our legislation, Schumer said.

On the currency issue, not enough is being done. So we are going to move our bill, he said in comments echoed by other Senators who are co-authors of currency legislation.

The proposed bills would require the Commerce Department to treat undervalued currencies as an unfair trade subsidy under U.S. trade law. This would let U.S. manufacturers request, on a case-by-case basis, a countervailing duty on Chinese goods that benefit from the exchange rate.

The tiny gain by the yuan raised analysts' suspicions that the currency will be allowed to rise over time but at a pace that is too slow to narrow China's huge trade surplus with the United States soon.

That could prompt U.S. and other officials meeting at a Group of 20 summit in Canada this weekend to press Beijing further over what its new currency policy will mean in practice.

The United States has officially welcomed China's weekend announcement signaling it was ditching a two-year peg to the dollar, but the lawmakers, labor unions and manufacturing groups are already calling for renewed pressure on Beijing.

There's no disagreement that the Chinese currency is undervalued. There's no disagreement that it's absolutely crucial for appreciation to occur, U.S. Commerce Secretary Gary Locke told the U.S. Senate Finance Committee.

Adam Carr, a senior economist at broker ICAP in Sydney, called initial excitement over China's currency shift overblown.

It lacked substance, given China was never going to make huge inroads into revaluation, he said.

Significant dollar purchases by state-controlled banks appeared to be on behalf of the central bank, suggesting the authority continues to exercise a heavy hand in controlling the currency's value, traders said.

YUAN GAINS NOT A SURE THING

Beijing's decision to free the yuan helped fuel a global market rally on Monday on hopes that a stronger yuan would boost spending in the world's third-largest economy and increase its demand for foreign goods, giving a much-needed boost to a global recovery.

That impact has since faded, with Asian stock markets and commodities-linked currencies such as the Australian dollar giving up some of their gains.

The last three days have showed that hopes for a one-way appreciation are wishful thinking. We can tell that they are quite serious about allowing for two-way fluctuations, said Isaac Meng, an analyst with BNP Paribas in Beijing.

After two days that saw some of the greatest volatility in the yuan since the revaluation, it traded in a much narrower range on Wednesday, keeping the market guessing as to what the new currency regime would ultimately look like.

A Reuters poll of 33 economists on Monday forecast the yuan would rise to 6.67 per dollar by the end the year, an increase of just 2.4 percent from late last week and similar to the appreciation implied by offshore non-deliverable forwards.

(Additional reporting by Doug Palmer in Washington and Lu Jianxin, Jason Subler and Koh Gui Qing in Shanghai; writing by Paul Eckert, editing by Anthony Boadle)

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