By Doug Palmer and Glenn Somerville
WASHINGTON, Sept 8 (Reuters) - A volatile political environment is boosting the possibility that U.S. lawmakers will pass legislation designed to prod China into letting its currency rise more rapidly against the dollar.
"The chances are certainly on the rise, I think for two reasons," Jeremie Waterman, senior director for China at the U.S. Chamber of Commerce, told Reuters.
The first is the testy political atmosphere ahead of November congressional elections that has many Democrats in fear of losing their seats, and the other is the "very limited progress" Beijing has made revaluing its yuan since a high-profile announcement in June, Waterman said.
China said in June that it would permit market forces greater sway in setting the yuan's value, yet it has only appreciated about 0.6 percent since then.
Pressure is building in both the House of Representatives and Senate over the issue, creating some nervousness among analysts about the risk that legislative proposals may stir more trade tensions.
A bipartisan group of senators led by New York Democrat Charles Schumer and Republican Lindsey Graham have insisted throughout the year that have more than enough votes to win approval of a China currency bill.
The House Ways and Means Committee already has a hearing set for Sept. 15 when members of Congress who support action on China's currency would appear, as well as a panel of outside experts.
With a weak recovery constraining job creation and fanning voter anger, sources said they expected the Senate Banking Committee to also hold a hearing on Sept. 16, with U.S. Treasury Secretary Timothy Geithner in the hot seat.
The hearings would occur when frustration at persistently high U.S. unemployment at nearly 10 percent is a growing threat to Democrats' chances at retaining control of Congress in November and is a goad to lawmakers seeking a target for soaring U.S. deficits.
"There is no real question that China's deliberately undervalued exchange rate is unfair, contributes to global trade imbalances, and costs the United States jobs and economic growth, particularly in the manufacturing sector," Ways and Means Committee Chairman Sander Levin said in a statement on Wednesday.
UNFAIR PRICE ADVANTAGE
U.S. lawmakers and some business groups insist the yuan, also called the renminbi, is undervalued so low it gives Chinese manufacturers an unfair price advantage in U.S. markets and has cost millions of lost American jobs.
To date, the Obama administration has declined to name China a currency manipulator in semi-annual reports issued by the U.S. Treasury. Such a declaration would initiate a process requiring discussion with Beijing about its currency policy and potentially clear the way for trade sanctions against its products.
The Nelson Report, a newsletter focused on U.S. relations with Asia, reported the potential back-to-back U.S. Senate and House hearings in its Tuesday edition and raised expectations that Geithner could testify at both.
However, the Senate Banking Committee still has not officially announced a hearing and the U.S. Treasury Department has declined comment on whether Geithner would testify. Ways and Means also has not released a witness list.
Some analysts monitoring the situation in Congress with some alarm for fear it aggravates global trade tensions.
Dan Griswold, director of trade policy at the Cato Institute, said he saw "a real danger" that either the House or Senate could pass China currency legislation, but hoped President Barack Obama would exert enough pressure to keep a bill from reaching his desk.
With Democrats in fear of losing control of Congress, "perhaps they're desperate to respond to populist worries about the economy and energize their union base," Griswold said.
Lawmakers have threatened to take legislative action against China in the past but backed down in hope that negotiation would eventually succeed in persuading Beijing that it was in its interests and those of the global trade satem to let its currency's value be set by market forces.
Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, said the House was the more likely of the two chambers to take action on a China currency bill.
"My guess is that the administration's position would be not to blast it frontally, but to try to slow it down in the House in a quiet way," Hufbauer said.
(Reporting by Doug Palmer, editing by Philip Barbara)