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Europe still biggest headwind to global recovery: U.S.

By Anna Yukhananov

WASHINGTON (Reuters) - Europe's financial crisis remains the biggest hurdle to global economic recovery and will be in focus at a meeting of world finance chiefs in Mexico City this weekend, a senior U.S. Treasury official said on Friday.

"Recognizing that Europe remains the strongest headwind to global growth, there will be considerable interest among the G20 on the European crisis response," the official said.

The comments contrast with those from some other members of the Group of 20 leading economies, who said the United States' own fiscal problems will loom largest at the G20 meetings.

Unless the fractious U.S. Congress can strike a deal, a slew of U.S. spending cuts and higher taxes is due to kick in on January 1, sucking $600 billion out of the U.S. economy next year and threatening global growth.

The senior U.S. Treasury official, who spoke with reporters on condition of anonymity, also said the meetings in Mexico City will focus on what further steps developing countries should take to strengthen domestic demand and loosen exchange rate policy, particularly China.

"China for example still has further to go in achieving a market-oriented exchange rate and adjusting its imbalances in a sustained manner," the official said. But the official added that China has made progress in allowing the yuan to appreciate by over 11 percent in real terms against the dollar since 2009.

The G20 meeting comes on the heels of talks among many of the same officials at the International Monetary Fund meetings in Tokyo last month. Policymakers then backed a policy agenda aimed at pressuring the United States and Europe to tackle their debt woes.

This time around, G20 officials meet just before the U.S. presidential election and days ahead of China's Communist Party congress. Several top finance ministers and central bankers plan to skip the meetings in Mexico City - including U.S. Treasury Secretary Timothy Geithner - and most people involved in the talks expect no major agreements.

(Additional reporting by Alister Bull; Editing by James Dalgleish)

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