President Barack Obama faced growing congressional pressure on Monday to get tough with China over its currency practices, one day after Chinese Premier Wen Jiabao brushed off accusations that Beijing was undervaluing its currency for an unfair trade advantage.

The impact of China's currency manipulation on the U.S. economy cannot be overstated. Maintaining its currency at a devalued exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign competitors, 130 lawmakers said in a letter to U.S. Treasury Secretary Timothy Geithner and Commerce Secretary Gary Locke.

Many economists estimate China's currency is undervalued by 25 percent to 40 percent, giving it a huge trade advantage by effectively subsidizing its exports and taxing its imports.

Wen on Sunday dismissed U.S. complaints about China's exchange rate, calling them counterproductive.

He also blamed Washington for a deterioration in U.S.-China ties because of U.S. weapon sales to Taiwan and Obama's meeting with Tibet's spiritual leader, the Dalai Lama, last month.

The White House said relations between the United States and China were in good shape but acknowledged some differences between the two countries.

We have a mature relationship with China, Jeff Bader, Obama's adviser on ties with Beijing, told reporters at a briefing to preview the president's March 21-26 trip to Indonesia and Australia.

But I would not describe a relationship of tension.

But the lawmakers' letter showed the pressure Obama faces to push China to revalue its currency, which many U.S. lawmakers believe is to blame for lost manufacturing jobs and the huge U.S. trade deficit with China.

If the administration fails to act on this issue it will hold back our economic recovery and hurt the ability of American small businesses and manufacturers to increase their production, keep their doors open, and create jobs, said Representative Michael Michaud, a Democrat.

The White House's Bader made clear that China's rising influence in the Asia-Pacific region would be on the agenda during Obama's trip there next week.

We're also looking to reshape the international regulatory system through the G20 in a way ... that new actors such as China are acting consistently with international norms, he said when discussing coming talks between Obama and Australian Prime Minister Kevin Rudd.

CURRENCY MANIPULATOR LABEL

The lawmakers urged the Commerce Department to make a major policy change and agree to impose countervailing duties on a case-by-case basis against countries that manipulate their currency for an unfair trade advantage.

The department is already considering that possibility in a case involving coated paper imports from China.

The lawmakers also demanded the Treasury Department formally label China as a currency manipulator in an April 15 report on the currency practices of major trading partners.

Obama's administration has declined to take that step in two previous reports, although the U.S. president accused China of currency manipulation in his 2008 presidential bid.

Representative Tim Ryan, a Republican, said in the letter that Obama should work with the International Monetary Fund and other countries to pressure China to revalue its currency.

If that pressure fails, they urged, the Obama administration officials should consider filing a complaint against China under the World Trade Organization.

Late last week, Senator Charles Schumer, a Democrat, said he planned to craft new legislation to pressure China on its currency regime.

(Additional reporting by Matt Spetalnick and Ross Colvin, Editing by Kenneth Barry)

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