* Elysee palace source dismisses FT report
* France preparing G20 presidency from November
* Sarkozy keen to promote international monetary stability
(Adds details, quotes, background)
By Emmanuel Jarry
PARIS, Oct 2 (Reuters) - France has not held secret talks with China as part of an effort to heighten coordination of exchange rates, a French presidential palace source said on Saturday, dismissing an earlier Financial Times report.
The London-based paper said talks had been going on for a year and that Paris wanted to open the debate during the G20, rather than push a particular view, and was not proposing fixing rates.
"There have been no secret negotiations on exchange rates with any of our G20 partners, not the Chinese or any other partner," the source at the Elysee palace told Reuters.
President Nicolas Sarkozy has said that promoting international monetary stability will be high on his agenda when France takes over the rotating chair of the Group of 20 major economies in November.
One priority will be to identify which institution should deal with global currency issues, the paper quoted sources familiar with the matter as saying.
"The information published in the FT is "without foundation," the source said.
France, frequently mistrustful of untrammelled market forces, has been a voice in the wilderness for years calling for global coordination of currencies.
"France has of course started the consultation process with major partners on the topics that will be central to its presidency, including the reform of the monetary system, so that we gather everybody's views," said a second French diplomatic source, adding there was nothing secretive about the talks.
SARKOZY AGENDA
Sarkozy's agenda may appeal to the economies of China, India, Brazil and Russia, irked by the dollar's hegemony, while offering sufficient incentive to draw in the United States and Britain, despite their belief in floating exchange rates.
It also has a domestic payoff for a president hoping to leverage his international statesmanship to revive his battered popularity and neutralise a highly popular potential rival ahead of a tough 2012 re-election campaign.
Policy moves by the Chinese government to free the yuan from a dollar peg will help the Chinese currency rise, Dominique Strauss-Kahn, the head of the IMF said on Saturday.
Beijing has rejected any international discussion of its foreign exchange policy to date and blocked an attempt by G20 leaders in June to praise its decision to allow greater flexibility in the yuan's exchange rate in their communique.
An International Monetary Fund initiative a few years ago to tackle a root cause of exchange rate instability by reducing economic imbalances among major countries, including China, came to nothing.
The FT said Sarkozy would lobby Hu Jintao on the issue when the Chinese president visits Paris in November and also plans to discuss currency co-ordination with U.S. President Barack Obama and German Chancellor Angela Merkel.
(Writing by John Irish; editing by Jane Baird)