* China should buy more American goods to cut trade imbalance
* U.S. trade deficit with China needs to come down
* EU crisis brings more urgency to upcoming US-China talks (Adds comments from news briefing on yuan, market economy)
By Doug Palmer
SHANGHAI, May 19 (Reuters) - U.S. Secretary of Commerce Gary Locke urged China on Wednesday to purchase more American goods to help reduce a huge trade imbalance that has caused friction in U.S.-Sino ties.
"Obviously the trade deficit needs to come down," Locke told Reuters in an interview ahead of a high-level U.S.-China Dialogue on economic and foreign policy concerns early next week in Beijing.
"There's two component to it: more exports from the United States to China and more internal consumption within China so that they're less reliant on exports," Locke said.
The former Washington state governor said he believed the turbulent economic events of the past several years, including most recently in Europe, has persuaded Chinese leaders they need to find a new model for economic growth.
"They recognise that their economy cannot become so export dependent, especially with the crisis within the EU. That's also a major destination for Chinese products," he said.
The U.S. trade deficit with China totaled $226.8 billion in 2009, down more than $40 billion from 2008 but still the largest the United States has with any country.
The huge imbalance has fueled accusations in the U.S. Congress and manufacturing sector that China is manipulating its currency for an unfair trade advantage by keeping the price of its yuan artificially low against the dollar.
U.S. officials have said those concerns will be on the agenda at the two-day U.S.-China Strategic and Economic Dialogue meeting starting on Monday.
Asked at a news briefing if he thought the crisis in Europe had changed the environment for the talks by making China more wary of revaluing its yuan currency, Locke said: "I'm sure it cannot be ignored."
"I think it means perhaps a greater urgency that the two countries talk about economic policy and the way that we can move forward on rebalancing our economies," he told reporters.
"So, I think it's even better that we're meeting at this time," he added.
MARKET ECONOMY
Locke, who is in Shanghai leading 24 U.S. companies on a clean energy trade mission, declined further comment on the yuan, saying that was the jurisdiction of U.S. Treasury Secretary Timothy Geithner.
A primary purpose of the mission is to help meet President Barack Obama's goal of doubling overall U.S. exports within five years.
He was also asked when the United States would designate China as a "market economy", as it did several years ago for Russia.
Locke said that depended on when China met a strict set of criteria under U.S. law and did not give any specific timeframe.
China resents not being considered a market economy by the United States, which affects how Washington calculates any anti-dumping duties it imposes on Chinese exports.
Locke stopped short of setting an individual goal of doubling U.S. exports to China.
But China's push to boost its use of renewable energy and to increase building efficiency offers big opportunities in areas where U.S. companies have a lot to offer, he said.
In some cases, it makes more sense for U.S. companies to build factories in China, than to ship the goods from the United States, Locke said.
But U.S. company investment in Chinese manufacturing facilities also supports U.S. jobs since many of the components that go into final goods produced in China are made in the United States, he said.
The United States also welcomes Chinese investment in the U.S. manufacturing sector, which helps create jobs in the United States, Locke said.
"That's been a theme of the United States, with respect to all countries," he said.
U.S. companies had more than $45 billion invested in China as of 2008, but Chinese investment in the United States remains far below that. (Editing by Jacqueline Wong & Kazunori Takada)