* MOFCOM's Chen says U.S. overstates China's trade surplus
* Says China trade balance could turn to deficit in March
* Reiterates China stance on yuan, protectionism
By Langi Chiang and Ken Wills
BEIJING, March 21 (Reuters) - Beijing will take retaliatory steps if the United States declares China a currency manipulator and imposes trade sanctions, commerce minister Chen Deming said on Sunday, the latest salvo in a spat over the value of the yuan.
Chen, speaking at the China Development Forum, again accused Washington of politicising the issue ahead of an April 15 deadline when the U.S. Treasury must decide whether to declare China a currency manipulator. (See Factbox on currency manipulation)
"The currency is a sovereign issue and should not be an issue to be discussed between two countries," Chen said.
"We think the renminbi (yuan) is not undervalued, but if the U.S. Treasury gave an untrue reply for its own needs, we will wait and see. If such a reply is followed by trade sanctions, I think we will not do nothing. We will also respond if this means litigation under the global legal framework."
He did not specify how Beijing might respond.
Political pressure is growing in Washington to declare China a currency manipulator, with some U.S. senators threatening to slap duties on Chinese products if Beijing does not allow the yuan to rise.
China has held its currency near 6.83 yuan to the dollar since mid-2008 in order to help China's exporters weather the global financial crisis.
But some U.S. legislators say that has kept the yuan artificially undervalued by as much as 40 percent, causing imbalances in bilateral and global trade flows.
TRADE SURPLUS 'OVERESTIMATED'
Chen accused Washington of overestimating the size of China's trade surplus with the United States, putting more pressure on the relationship between the world's biggest and third-biggest economies.
The defiant weekend comments stood in contrast to a ministry statement on Friday, which was widely interpreted as an attempt to bridge differences.
The ministry said then that it would send a vice minister to Washington next week to try to ease trade frictions, although it specifically noted that China's currency policy was off-limits.
Speaking on Sunday, Chen said that any adjustment to the yuan's value would not by itself resolve global trade imbalances, adding that China's trade balance could turn to a deficit in March.
He said that from 2005 to 2008, the yuan had appreciated by more than 20 percent while the country's trade surplus increased. In 2009, he added, the yuan was steady but the trade surplus fell by 34 percent.
"A country's currency appreciation is very limited in helping to rebalance global trade," he said. "I personally expect that China could possibly have a trade deficit in March."
Chen called on all countries to oppose any form of trade protectionism, a theme that echoed an earlier speech by Vice Premier Li Keqiang, though they did not mention specific countries.
(Editing by Jeremy Laurence)