* FX focus in 2010 on exports, narrowing trade gap
* FX reserves "adequate" at three months import cover
* Loose monetary policy seen as inflation risk (Adds economist quote)
By Nguyen Nhat Lam and John Ruwitch
HANOI, Oct 20 (Reuters) - Vietnam's prime minister said on Tuesday that the dong's exchange rate would be managed flexibly next year to revive weakening exports and cut the trade deficit, underlining market expectations that the currency will weaken.
The government will "manage the foreign exchange market and the value of the currency flexibly in relation to interest rates, the inflation index, the trade balance and other investment channels in order to promote exports, reduce imports and improve the trade balance, as well as the international payments balance", Nguyen Tan Dung said.
Dung made the comments at the opening of the autumn session of the National Assembly, or parliament, when he also gave forecasts for the economy.
The dong has fallen about 5 percent so far this year on official and unofficial markets. Exports are expected to drop this year by close to 10 percent, Dung said.
Market participants expect the dong to weaken further in the coming months. In a bi-monthly report on Vietnam in September, HSBC said it saw the official rate reaching 18,200 by the end of the year. A black market dealer said recently he thought the unofficial rate would hit 19,000 in the coming months.
Dung's comment "belies a preference for a weak currency", said an economist at a foreign bank who declined to be identified because he was not authorised to speak about policy.
With the dong closely linked to the dollar, a weakening greenback will help exports but that will not solve the problem of the currency trading outside its band on unofficial markets.
"The expectation is that sooner or later there will be another one-off (devaluation)," he said.
Meanwhile, others called for more government intervention to deal with the chronic shortage of foreign exchange.
"Next year more attention should be paid to reducing the imbalances on the currency market, budget deficit and foreign exchange rate stabilisation," the online newspaper VnExpress (www.vnexpress.net) quoted Vu Viet Ngoan, Deputy Director of the National Assembly's Economic Commission, as saying.
Ngoan also called on the government to tighten monetary policy to rein in credit growth and preempt inflation.
SUFFICIENT RESERVES
For the past year or so that rate has effectively been the weak end of the trading band, which is 5 percent on either side of a daily midpoint set by the central bank.
The government has widened the band four times since March last year when it was at 0.75 percent, and executed two one-off devaluations of the reference rate.
Dung said foreign exchange reserves were at an "adequate level" and sufficient to cover about 12 weeks of imports.
Vietnam does not regularly publish monthly foreign exchange reserves, but based on January to September imports of $48.28 billion, 12 weeks of imports would be the equivalent of about $14.85 billion, according to Reuters calculations.
Reserves stood at $17.6 billion at the end of June, down from $23 billion at the end of last year, the Asian Development Bank said last month, after exports fell and the central bank was forced to step up dollar sales to support the currency.
Dung repeated that the economy was on track to meet an annual growth target of 5.2 percent this year and to expand 6.5 percent next year with inflation of 7 percent.
Credit growth would be "above 30 percent" this year, he said. The central bank's target this year is 30 percent.
Some economists fear strong credit growth, stoked by a loan interest subsidy scheme at the heart of the economic stimulus package, could contribute to high inflation next year.
Dung forecast bad debt would be reined in to less than 3 percent of outstanding loans but warned that "loosened monetary policy" could trigger a comeback of high inflation.
Exports will grow next year 6 percent compared after a fall of 9.9 percent this year, Dung said.
The current account is forecast to face a deficit of $6.5 billion this year, while the capital account would have a surplus of $7.3 billion, making an overall deficit of $1.9 billion, said Dung's speech, a copy of which was seen by Reuters. (Additional reporting by Ho Binh Minh; Editing by Jan Dahinten)