* Geithner says stronger yuan would help damp inflation
* More progress on yuan could open door to U.S. technology
* Intellectual property fears hold up tech trade (Adds economist's analysis, details)
By Glenn Somerville and David Lawder
WASHINGTON, Jan 12 (Reuters) - U.S. Treasury Secretary Timothy Geithner said on Wednesday that China needs to let its yuan currency strengthen more quickly, a move which could open up long-denied access to U.S. technology.
Offering a carrot-and-stick approach before a state visit by Chinese President Hu Jintao, Geithner said failure by China to allow more currency appreciation could hurt its economy.
"China still closely manages the level of its exchange rate and restricts the ability of capital to move in and out of the country," Geithner said. "These policies have the effect of keeping the Chinese currency substantially undervalued."
He described China as focused on taking greater advantage of U.S. investment opportunities, gaining more market access and being able to buy U.S.-made high-tech goods.
"We are willing to make progress on these issues but our ability to move on these issues will depend of course on how much progress we see from China," Geithner said in an address at Johns Hopkins' School of Advanced International Studies.
The U.S. is reluctant to let China have freer access to high-tech products when Beijing is conditioning access to its markets on companies agreeing to yield their technology to Chinese competitors.
Graphics on economic relations between China and the U.S.:
Biggest holders of U.S. Treasury securities:
http://r.reuters.com/hyw35r
China-U.S. trade of biggest exports and imports since 1989:
http://r.reuters.com/jyw35r
Main historical events and value of the yuan:
http://r.reuters.com/xyz45r
Economics and trade will be a major element of next week's White House talks, but are just one item on an agenda intended to set a better tone for relations after disagreements between Washington and Beijing last year over North Korean attacks on South Korea, Internet censorship, human rights, South China Sea navigation, climate change and valuable rare earth minerals.
The U.S. has sought a faster yuan rise for years. U.S. manufacturers and politicians complain that Beijing manipulates its currency to gain an unfair trade advantage.
Since unshackling the yuan
He said Beijing would be better off letting its currency strengthen now to cap inflation.
"The most important thing to understand is it is going to happen. There is no alternative path," Geithner said. "The only choice for China is how it happens, and what mix happens through inflation and through the exchange rate itself."
Economist Derek Scissors of the Heritage Foundation said Geithner was telling the U.S. Congress that "what we want is a real exchange rate appreciation, and we can get that in a couple different ways, so let's not get hung up on how much the nominal exchange rate changes."
China counters that Washington's staggering $1.3 trillion budget deficit poses the main risk to the global economy and Beijing laid down its own marker on Wednesday ahead of the Jan. 19 talks between Hu and U.S. President Barack Obama.
Beijing would like to see a "positive" U.S. statement about the security of China's dollar-denominated assets, Vice Foreign Minister Cui Tiankai said, offering a reminder that the United States relies heavily on borrowing from China to finance its day-to-day operations. For more see [ID:nN09519970].
Geithner dismissed it as part of a "typical pattern" by Chinese foreign ministry officials trying to stake out a bargaining position ahead of official talks.
He conceded, though, that the U.S. government must "restore fiscal responsibility" and said that includes cutting spending and reforming the tax system to encourage more investment.
Geithner said U.S. exports to China will top $100 billion this year, twice the rate of exports to the rest of the world.
But he complained that theft of U.S. intellectual property was rampant in China and U.S. companies faced unfair barriers that Beijing must dismantle.
The pilfering of U.S. intellectual property, including under Beijing's so-called "indigenous innovation" policy that ties foreigners' market access to technology transfer, is the main reason for the curbs on exports of high-technology products that China consistently demands Washington remove.
"The Chinese are asking for high-end commercial stuff and we're telling them: 'not until you protect intellectual property and you've got an indigenous innovation policy that says steal it'," says Scissors. (Additional reporting by Paul Eckert, Emily Kaiser and Rachelle Younglai; Editing by Leslie Adler and James Dalgleish)