* China calls for stability of major reserve currencies
* Euro zone says yuan "totally undervalued"
* EU and Asian leaders agree to boost domestic demand
By Jan Strupczewski and Justyna Pawlak
BRUSSELS, Oct 4 (Reuters) - China politely rebuffed European calls on Monday for a faster revaluation of its yuan currency, telling a European Union-Asia summit that its goal was to maintain foreign exchange stability.
Prime Minister Wen Jiabao, addressing the opening session of a 48-nation summit representing more than half of the world's population and economy, said: "We must work together to... keep exchange rates of major reserve currencies relatively stable."
The United States and the EU accuse Beijing of keeping its currency artificially weak to promote exports, undermining jobs and economic competitiveness in advanced Western economies.
"We do believe that the yuan is totally undervalued," a spokesman for Jean-Claude Juncker, chairman of the 16-member euro zone's finance ministers, told Reuters.
China holds the world's biggest foreign currency reserves, having accumulated vast amounts of U.S. dollars and euro assets.
Juncker, European Central Bank President Jean-Claude Trichet and EU Economic and Monetary Affairs Commissioner Olli Rehn were to press the Chinese finance minister and central bank governor in private talks later on Monday to allow the currency to appreciate faster.
Since Beijing scrapped a peg to the dollar on June 19 and decided to make its exchange rate more flexible, the renminbi has gained 2.15 percent against the dollar but weakened 9.4 percent against the euro.
Meanwhile Japan, another big Chinese trade partner, has intervened in foreign exchange markets to halt the yen's rise.
Beijing has so far rejected Western efforts to draw it into multilateral foreign exchange cooperation, but France hopes to persuade China to engage in dialogue on currencies within the G20 global economic forum during Paris' presidency in 2011.
BOOSTING DOMESTIC DEMAND
In a nod to European concerns, a draft final statement obtained by Reuters showed the leaders would agree to boost domestic demand and investment through a gradual liberalisation of internal and international markets.
All forms of trade protectionism should be rejected, the draft said, and it was crucial to implement International Labour Organisation fundamental principles and rights at work.
"As a first priority, the demand for goods and services as well as investments have to be encouraged since they are the drivers of economic growth and job creation across countries," the leaders said in the draft.
"To this effect, the progressive liberalisation of domestic and international markets must be pursued," said the statement, to be adopted at the end of the two-day meeting on Tuesday.
Chinese concerns about Europe were reflected in a passage in which leaders pledge to move away from "patterns that created fragilities in the pre-crisis period, including excessive public deficits, non-sustainable debts and development gaps".
On a visit to Greece on Saturday and Sunday, Wen offered to buy Greek sovereign bonds when the debt-stricken EU member returns to the market and to work for the stability of the euro zone and its currency.
The EU sees strengthening ties with Asia as vital to efforts to enhance its global standing and match the rise of emerging powers such as India and China.
But its efforts are hindered by disputes over trade, currency issues and how many seats Europe has on the IMF's governing board.
Europe has been under pressure to produce proposals in time for a summit of the Group of 20 economic powers in the South Korean capital Seoul on Nov. 11-12, and suggested on Friday it could give up two of its nine International Monetary Fund seats.
Wen referred obliquely to Asian irritation at Euro-U.S. domination of global financial institutions, calling for a reform of global economic governance to "increase the voice of developing nations".
The United States, frustrated at Europe's refusal to share more power, declined in August to back a resolution that would have maintained European dominance over the International Monetary Fund's 24-member board.
Washington wants the number of IMF board seats cut to 20 as part of reforms to give emerging economic powers a bigger say in IMF decisions, reflecting their growing global clout.
Other Asian leaders advised the Europeans to tread carefully with Beijing on the foreign exchange issue.
Malaysian Prime Minister Najib Razak told reporters: "Such discussions should be handled in a very tactful manner, because I don't think the Chinese appreciate any form of pressure against them, but it has to be on the basis of engagement to work out a kind of a stable currency regime, because any drastic changes would not be good for the financial system."
European officials have long said that China, which could soon officially become the world's second biggest economy -- displacing Japan -- should boost domestic demand to better balance its now mainly export-led growth.
To achieve that, some Europeans have said that China would need to strengthen its social safety nets such as health care and pensions, to increase consumer confidence to spend.
The joint declaration said social safety nets could be an economic stabilizer at a time of crisis, not just as a welfare or redistributive mechanism.
But it cautioned that "they must be developed on a country per country basis, in order to take account of national circumstances and resources". (Additional reporting by Charles Dunmore; writing by Paul Taylor; editing by Rex Merrifield)