The Bush administration is pressuring China to let the yuan rise against the dollar partly to mollify Capitol Hill and wants action within the next few months, US Treasury Secretary John Snow said on May 18.

"We are escalating the rhetoric and time is running out," Snow told questioners after a luncheon address to the American Iron and Steel Institute, where he indicated he was confident that China will loosen the peg it maintains on its currency.

"I fully expect in the next few months we are going to see that," Snow said, adding he hoped to help ward off mounting congressional calls for protectionist measures, which he said reflected a "decidedly anti-China" feeling that was potentially dangerous.

China pegs its yuan, also known as the renminbi, at about 8.28 to the dollar, a practice US manufacturers and lawmakers complain gives Chinese imports an unfair price advantage that has closed factories and cost millions of American jobs.

The United States and others, including Western Europe, want to the yuan's value to rise to slow the flood of cheap Chinese imports, which has pushed the US trade deficit to new levels and crimped normal mechanisms for reducing it.

In a semiannual report to Congress on May 17, the Treasury warned that China "likely" will be named as a country that deliberately manipulates its currency manipulation later this year unless it alters its policies. Such a designation would first trigger intense talks and possibly trade retaliation.

Snow was asked on May 18 why Treasury did not name China a manipulator as many industries wanted. He said the United States has only recently concluded that China could handle more flexibility and indicated he feared it could have triggered retaliation.

"If we had designated them ... that could have led to congressional action," Snow said. "That's something I think we should avoid."

"I shudder to think how markets would respond if they saw the United States turning its back on open markets," he added. "The United States should never return to the path of isolationism."

There was widespread anger among lawmakers on May 17 that Treasury did not simply state that China was manipulating its currency. But the event that galvanized the Bush administration to become more aggressive occurred last month, when the Senate, in a preliminary vote, put China on notice it could face a 27.5% tariff on exports to US markets unless it moved to a flexible currency within six months.

The measure is expected to come up for a vote in the Senate again in July.

Snow said the dark mood on Capitol Hill represented, "a dangerous situation" and he hoped China recognized and understood that was the case.

Tougher talk from Washington risks getting China's back up over currency reform, and Beijing has indicated it won't be pressured into acting before it feels its banking and financial system can handle increased flexibility.

Still, on May 18 China introduced a new foreign exchange dealing system to permit domestic trading in currencies besides the yuan -- a move that Snow noted as a sign of progress toward a more liberal and less tightly controlled currency regime.

Over the next few months, there may be high-level opportunities for the United States and other key industrial country representatives to engage Chinese leaders on the currency issue.

Finance ministers from the Group of Seven -- the United States, Britain, Canada, France, Germany, Italy and Japan -- meet in London June 10-12, and Chinese representatives may be invited to attend. In July, President George W. Bush and other G7 leaders hold a summit in Scotland that might also be a venue for invited representation from China.

In his prepared remarks to the steel industry representatives, Snow made the case that swift currency reform is in China's own interest given its status as a rising market-based power.

"The fixed exchange rate coupled with large capital inflows deprives China of the ability to run its own monetary policy or alter domestic interest rates