Soaring energy costs and steps by China to loosen its rigid currency trading system looked set to dominate talks on Friday among finance chiefs from the world's rich nations. As US officials kept one eye on the second hurricane in a month to head for the refinery-rich Gulf of Mexico region, China announced a surprise new move to let the yuan float more freely against major currencies other than the dollar.
China's top finance officials, along with counterparts from Brazil, India, Russia and South Africa, are due to meet with the so-called Group of Seven leading economic powers before Friday's formal G7 meeting on the world economy in Washington.
"China has made some progress towards a flexible exchange rate system," Britain's finance minister Gordon Brown told reporters on Friday ahead of the meeting.
The US Treasury, meanwhile, called the move a technical step on the road to a freer currency.
Brown said it was important that all G7 members act to tackle worrying global economic imbalances. European and other G7 members have expressed concern for years about ballooning US indebtedness to the rest of the world.
Pressure on China to allow the yuan to rise in value has become intense in western capitals over the past couple of years. Trading partners complained that Beijing's past policy of tightly pegging its currency to a falling US dollar gave its super-competitive exporters an even bigger trade edge.
At the same time, the vast store of dollars China accumulates to keep the yuan from rising has been banked back in US assets - helping depress US borrowing costs and fuelling America's massive trade and investment deficits.
The G7 - the United States, Japan, Germany, France, Britain, Italy and Canada - had been expected to welcome July's mini 2.1 percent revaluation of the yuan against the dollar with the proviso that this should be just a start.
The timing of Friday's decision to allow the yuan to trade in wider ranges against non-dollar currencies such as the euro and yen, although seen largely as a technical tweak, may bolster rich nations' hopes that more change is afoot.
"It is a way to respond to political pressure without changing significantly the system," said Sebastien Barbe, economist at Calyon.
A G7 source told Reuters a final communique expected to come out around 6 pm (2200 GMT) on Friday will nod to China's steps so far. It was unclear whether it would retain language adopted in Dubai in 2003 urging more flexibility.
On Wednesday, the International Monetary Fund said it expected the global economy to expand a healthy 4.3 percent this year and next but warned oil prices - which have more than doubled in 18 months - posed a growing risk.
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