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WASHINGTON (Reuters) � Johnson & Johnson's massive recall of faulty medicines, including a quiet buyback of its Motrin painkiller, has angered U.S. lawmakers who will question the company's chief executive and a senior health regulator on Thursday.

J&J has recalled millions of bottles of potentially contaminated over-the-counter medicines such as Children's Tylenol and Benadryl, forcing one of its plants to shut down well into next year, and prompting a criminal probe and civil lawsuits.

The House of Representatives Oversight and Government Reform Committee called the hearing after a session in May that some members said just raised more questions.

"During the course of its investigation, the Committee has been concerned about the inconsistencies that it has uncovered," Democratic staffers on the panel said in a memo released ahead of the hearing.

J&J CEO William Weldon plans to say his company "let the public down," according to written testimony released on Wednesday.

He is announcing $100 million to improve facilities and operations and said at least one recalled product would be back on the market next week.

In April, J&J's McNeil consumer unit recalled 40 children's and infant products -- affecting 135 million bottles -- after Food and Drug Administration inspectors found filthy equipment and contaminated ingredients at a Pennsylvania factory.

Company and FDA officials say there have been no reported injuries from the recalled products.

Other witnesses at the hearing include FDA Deputy Commissioner Joshua Sharfstein and Colleen Goggins, the head of the McNeil unit, who is due to leave March 1.

Weldon has not announced any plans to retire but the recalls have tarnished J&J's reputation with consumers and marred his largely successful eight years at the helm.

MOTRIN RECALL

In probing the April recall of children's medicines, the committee discovered that J&J hired outside contractors in 2009 to buy packages of adult Motrin sold at convenience stores that had dissolving problems.

Lawmakers want to determine if the FDA knew about the stealth recall as J&J asserts. The FDA denies it approved the company's action.

FDA's Sharfstein plans to acknowledge that, overall, the recall was hampered by delays on all sides.

While FDA knew about some of McNeil's plans, the company "did not fully disclose the likely scale of the action or the way that the company was intending to proceed," according to Sharfstein's written testimony.

An e-mail released by the committee shows an employee for one contractor knew the buyback could be viewed negatively.

Pulling specific faulty lots "will take time and may draw suspicion to what we are doing," an employee for Inmar Inc told McNeil managers. "Some stores will not care, others will ask specifically what we are doing."

Darrell Issa, the committee's senior Republican, has questioned the FDA's handling of the situation and has asked the Department of Health and Human Services to investigate.

"There are growing concerns surrounding the relationship between the FDA and McNeil," he said.

FDA's Sharfstein said the incident highlights FDA's reliance on voluntary company actions and the need for greater agency power to demand recalls, something Committee Chairman Edolphus Towns is pushing through legislation.

Despite the recalls, shares of J&J, a huge diversified healthcare company, have largely tracked the broader market.

Chief Financial Officer Dominic Caruso told investors in July that the recalls cut quarterly sales by $200 million, or about 5 cents per share.

(Editing by Tim Dobbyn and Muralikumar Anantharaman)

HONG KONG (Reuters) � The dollar was stuck near an eight-month low on Thursday, ground down by expectations of more Federal Reserve easing, while Asian stocks pulled back slightly from a two-year high as markets took a breather from September's strong rally.

The dollar (.DXY) is down 8.5 percent this quarter against a basket of world currencies, its worst quarter in over eight years, as a sluggish economy and stubbornly high unemployment levels have fueled expectations of another round of asset buying by the Fed.

Asian stocks ex-Japan fell 0.4 percent but were set for their best quarter in a year as investors poured money into regional markets on the back of robust economic growth driven by China.

The MSCI index of Asia Pacfic stocks outside Japan (.MIAPJ0000PUS) has gained over 17 percent this quarter, easily outperforming developed markets with the S&P 500 (.SPX) up 11 percent and European shares (.FTEU3) up 7.2 percent.

For the year to date, the ex-Japan index is up around 7 percent.

Japan's Nikkei (.N225) fell 0.7 percent after U.S. stocks closed lower, but was set for its best monthly performance in six, helped by expectations that further easing would curb the yen's strength.

Mounting speculation that the Bank of Japan was preparing to ease monetary policy again and that it could take action at its meeting next Tuesday was keeping the yen's gains in check.

Traders also remained wary of any further intervention by Tokyo to weaken its currency, as the dollar struggled against the yen.

By late morning it was at 83.80 yen, just above a 15-year low set just before Japan intervened to sell the yen on September 15.

"The big turning point in September was intervention. The move has helped to soothe fears about a further advance in the yen and put the stock market back on a recovery path," said Masayuki Otani, chief market analyst at Securities Japan, Inc.

"Neither the United States nor Japan has changed their stance toward easing policy, and that will likely support the market. The domestic economy is seen slowing from now on, but a sharp slowdown is unlikely and stock prices will likely move to factor that in advance and build on gains."

Japanese government bonds dipped on profit taking after the previous day's rally, although weak industrial output data further clouded Japan's economic outlook and helped to curb losses.

Gold ticked lower but held within sight of a record high hit in the previous session, underpinned by continued U.S. dollar weakness. Spot gold eased $1.80 to $1,307 by 10 p.m. ET.

(Additional reporting by Charlotte Cooper and Masayuki Kitano in Tokyo)

(Editing by Kim Coghill)

WASHINGTON (Reuters) � Elizabeth Warren, the Obama administration's new consumer financial czar, offered an olive branch to the largest U.S. banks on Wednesday, saying she wanted their help in developing a principles-based approach to rulemaking.

Warren told the Financial Services Roundtable that the new Consumer Financial Protection Bureau she is setting up does not intend to layer on complex new rules that add compliance costs and encourage avoidance by banks.

"Instead of creating a regulatory thicket of 'thou shalt nots,' and instead of using ever more complex disclosures that drive up costs for lenders and provide little help for consumers, let's measure our success with simple questions," Warren said in remarks prepared for delivery to the banking trade group.

She said these should include whether customers can understand financial products, figure out their costs and risks and compare products in the marketplace.

Among her first tasks in launching the new agency is to develop a new, simplified disclosure form for credit cards. She said an average consumer should be able to read the form in about four minutes, with 90 percent comprehension and "understand the deal."

Created by landmark financial reform legislation enacted in July, the new agency will take over consumer protection functions from several existing regulatory agencies.

Warren reiterated that she's not interested in dictating costs, terms or product features -- that's up to the marketplace, but for the market to function properly, information needs to be transparent.

"I come to Washington as a genuine believer in markets and a genuine believer that the purpose of regulating the consumer credit market is to make that market work for buyers and sellers alike: a level playing field where the best products at the best prices win," she told the group, which represents the 150 largest U.S. integrated financial institutions..

Warren, a Harvard Law School professor and consumer advocate, was named a special adviser to President Barack Obama and Treasury Secretary Timothy Geithner on September 17 to set up the agency, much to the chagrin of Wall Street.

Long a fierce critic of deceptive mortgage and credit card lending practices, she has been criticized by many financial executives for what they see as a lack of practical banking experience and a predisposition that banks are guilty parties.

Since shifting from her previous role as bailout watchdog chairing the Congressional Oversight Panel, Warren has spent time mending fences with the financial industry.

Earlier on Wednesday, she told reporters that the traditional rulemaking approach would put smaller banks at a disadvantage because it would raise compliance costs and "locks in an adversarial relationship" between banks and their customers, letting the rules shape the products.

She said she wants credit cards and mortgages to be more like toasters or cell phones, where customers can easily compare the costs and benefits.

To do this, she said she wants to set goals and work with the industry to meet them through clear, simple rules that do not require much "fine print" or pages of legal disclaimers.

"Layering 10,000 rules is not going to turn this into a working relationship," she told reporters. "Maybe that's the way we have to go. This is the invitation to another approach, and I hope they will work with me."

(Reporting by David Lawder; Editing by Bernard Orr)

WASHINGTON (Reuters) � The House of Representatives stepped up pressure on China to let its currency rise faster, passing a bill on Wednesday that could penalize Chinese goods, as lawmakers blamed it for lost jobs in America.

The bill is likely to fan the flames of a long-running dispute with China over trade and jobs, even though passage in the Senate remains far from a sure bet.

The bill passed with solid bipartisan support just over a month ahead of mid-term elections as voters focus on the still-struggling economy and persistently high unemployment. Many lawmakers both in the House and the Senate have complained for years that China's policies create an unfair trade advantage, but this is strongest step taken yet.

The bill treats China's exchange rate as a subsidy, opening the door to extra duties on Chinese goods entering the United States, some of which are already subject to special levies.

It passed by a vote of 348-79, with 99 Republicans joining 249 Democrats to pass the bill. Five Democrats and 74 Republicans voted no.

Any vote in the Senate, however, won't come until after congressional elections on November 2 when the U.S. political landscape could be greatly changed.

"China's persistent manipulation of its currency contributes to the outsourcing of American jobs and poses a very serious problem that requires real action," said House Ways and Means Committee Chairman Sander Levin.

House Speaker Nancy Pelosi said the bill would give President Barack Obama leverage in talks with China and "make it clear that if China wants a strong trading relationship with the United States, it must play by the rules."

The Obama administration has not taken a stance on the bill . But after the vote, a Treasury Department spokeswoman said the legislation reflected the "serious concerns" in Congress about China's currency practices.

"The president and Secretary Geithner share those concerns. They both have said repeatedly that China needs to allow a significant, sustained appreciation over time," she said.

Before the House vote, China's central bank reaffirmed its pledge to increase the flexibility of the yuan and improve the way it manages the exchange rate.

Obama and Chinese Premier Wen Jiabao talked about China's currency and huge trade surplus with the United States on the sidelines of the U.N. General Assembly last week.

Despite the yuan's modest gains against the dollar since Beijing allowed more movement in June, International Monetary Fund economists estimate the yuan is 5 percent to 27 percent undervalued.

Representative Dave Camp, the top Republican on the Ways and Means Committee, said he voted for the bill "because it sends a clear signal to China that Congress's patience is wearing out."

On the opposing side, Representative Jeb Hensarling, a Texas Republican, said he feared China could retaliate against the bill by shutting its market to U.S. farm exports, offsetting any gains in U.S. manufacturing jobs.

U.S. retailers, who source heavily from China, also expressed concern about being caught in the cross-fire.

Many lawmakers said the United States was already in a trade war with China and needed new tools to fight it.

Senator Charles Schumer, a Democrat who has been one of the loudest critics in Congress of China's trade policy, said after the vote that he was ready to take up the cause in the Senate. "We plan to push our bill in the Senate when we return later this year," he said.

GLOBAL CURRENCY WAR?

China's tight leash on the yuan is under intense scrutiny as countries around the world look to export their way back to economic health, raising concerns they will intentionally weaken their currencies to gain an edge.

Japan intervened this month to weaken the yen for the first time in six years.

The House move is certain to further roil relations with Beijing, which resents the criticism and says the decision about the speed of currency reforms is its alone.

China, the largest foreign buyer of U.S. government debt with holdings of nearly $847 billion as of July, also says its big trade surplus with the United States is due to Americans saving too little and no longer making the goods China sells.

While Obama has not taken a position on the legislation, House Majority Leader Steny Hoyer said lawmakers worked with the White House to ensure the bill did not violate WTO rules.

Treasury Secretary Timothy Geithner told Congress two weeks ago that Washington would work with Group of 20 nations to push China for faster appreciation but several allies expressed reluctance to join the effort. G20 leaders are set to meet in Seoul on November 10-11.

ECONOMISTS DOUBT BILL WILL WORK

The House bill allows the Commerce Department to treat "fundamentally undervalued currencies" as an illegal export subsidy so that U.S. companies can request a countervailing duty to offset China's price advantage.

That is expected to encourage steel, paper and other import-sensitive U.S. industries to file more cases. The United States now has countervailing duties on less than 3 percent of its imports from China, which totaled $296 billion in 2009.

Some economists said they understood the politics of the debate but questioned whether the bill would bring back American jobs or prod China to move faster on currency reform.

"We consume a lot. The Chinese save a lot. We're going to run a trade imbalance with them," said Derek Scissors of the Heritage Foundation.

China and the United States have a difficult but vital diplomatic relationship, not least in dealing with nuclear threats from Iran and North Korea.

WASHINGTON (Reuters) � U.S. regulators will put up a united front before a divided Congress on Thursday, promising to cooperate on hundreds of new rules aimed at preventing Wall Street excesses from triggering another financial crisis.

In testimony obtained by Reuters on Wednesday, Federal Reserve Chairman Ben Bernanke and other top regulators said they were well aware of the daunting task ahead.

The hearing before the Senate Banking Committee marks regulators' first joint testimony since the financial regulatory overhaul was signed into law two months ago.

"It is imperative that regulators work together, with both speed and openness in the implementation of the Dodd-Frank Act in order to dispel uncertainties and foster a smooth transition by the industry," said Sheila Bair, chairman of the Federal Deposit Insurance Corp.

The reform act, named after the two Democratic lawmakers who spearheaded what became a lengthy, contentious process, was intended to close some of the gaps in oversight exposed after the U.S. housing bubble burst in 2007.

Included in the law were the creation of a "systemic risk" council of regulators to look out for potential financial trouble spots, and new measures designed to safely shut down failing firms and avoid costly, unpopular government bailouts.

Skeptics, however, question whether the provisions really will end the problem of firms being too big to fail. Some Republicans have said they would roll back certain regulatory measures if their party wins control of Congress in November's elections. They are likely to use the hearing as an opportunity to express some of their reservations about the law.

Bair said the reforms included in the legislation provided tools necessary to "end" too big to fail.

"It must be made clear to these companies that their financial folly could result in losses to shareholders and bondholders and in the dismissal of their senior managers," she said.

REAMS OF RULES

Bernanke said past regulations did not keep pace with profound changes in the financial system, and the Fed was committed to working with other agencies to implement the new law.

"All told, the act requires the Federal Reserve to complete more than 50 rulemakings and sets of formal guidelines, as well as a number of studies and reports, many within a relatively short period."

The FDIC has 44 rules to write, and the other agencies have scores more.

"Implementation will require extensive coordination among the regulatory agencies and will fundamentally change the way we regulate large complex financial institutions," the FDIC's Bair said.

The Commodity Futures Trading Commission said about 80 global and regional banks would have to register to continue to trade in contracts that let investors bet on a host of variables including interest rate movements and debt defaults.

Democrats are eager to argue that their response to the worst financial crisis in 80 years will crack down on financial firms' riskiest behavior without choking off economic growth, and that progress is already being made.

Senators on the panel said they would probe regulators on broad issues such as how they plan to avoid turf fights while also focusing on specifics such as how the law will affect community banks.

In addition to Bernanke and Bair, the list of witnesses includes Neal Wolin, a deputy Treasury secretary; Mary Schapiro, chairman of the Securities and Exchange Commission, Gary Gensler, chairman of the Commodity Futures Trading Commission; and John Walsh, acting Comptroller of the Currency.

The same group will convene Friday for the first meeting of the Financial Stability Oversight Council, a group created under the new law to detect risks to financial markets before they threaten to bring the system to its knees.

(Additional reporting by Rachelle Younglai and Roberta Rampton, Writing by Emily Kaiser; Editing by Tim Dobbyn)

NEW YORK (Reuters) � American International Group Inc's board will meet later on Wednesday to discuss a plan that would allow the U.S. Treasury to exit its investment in the bailed-out insurer, AIG Chairman Steve Miller said.

Miller said that AIG was nearing a conclusion that could be a "win-win" deal for stakeholders.

The exit plan includes converting the Treasury's $49 billion preferred stake in AIG to common stock, Miller said at an industry conference in New York.

Separately, CNBC reported that AIG's board would finalize the exit plan on Wednesday and could announce the plan on Thursday, citing senior government officials.

The exit plan would chart the eventual disengagement of the government from AIG, which was propped up by a $182.3 billion taxpayer-funded aid package during the financial crisis.

(Reporting by Paritosh Bansal. Editing by Robert MacMillan)

PARIS (Reuters) � Stock index futures pointed to a lower open on Wall Street on Wednesday, with futures for the S&P 500 down 0.35 percent, Dow Jones futures down 0.27 percent and Nasdaq 100 futures down 0.01 percent at 0930 GMT (5:30 a.m. EDT).

The Federal Reserve will have decide in coming weeks whether it should do more to support an economy that has slowed significantly and faces some risk of deflation, a top official of the U.S. central bank said on Tuesday.

Dennis Lockhart, president of the Atlanta Federal Reserve Bank, maintained that deflation was not the most likely outcome, but still suggested the risk was not negligible.

Hewlett-Packard Co (HPQ.N), reassuring investors worried about growth after the surprise departure of ex-CEO Mark Hurd, forecast 2011 results that surpassed Wall Street expectations and propped up its shares in extended trading.

Campbell Soup Co (CPB.N) said on Tuesday that Chief Executive Douglas Conant would step down next summer after more than a decade leading the world's largest soup maker.

Boeing Co (BA.N) has finalized a $5.3 billion four-year agreement with the U.S. Navy to build 124 F/A-18 fighter jets and electronic attack planes, a deal that will generate savings of over $600 million.

PAR Capital Management, one of Dollar Thrifty Group's (DTG.N) top shareholders, plans to vote against the car rental company's deal to be bought by Hertz Global Holdings Inc (HTZ.N), PAR's president told the Wall Street Journal on Tuesday. PAR owns about 7.7 percent of Dollar Thrifty, the report said.

Google Inc (GOOG.O) expects mobile searches to generate most of its revenue eventually, but it could take a long time despite growing at a rapid clip, Chief Executive Eric Schmidt said on Tuesday.

British Airways (BAY.L), American Airlines and Spanish carrier Iberia (IBLA.MC) have signed off on a long-awaited strategic alliance that will see them cooperate on flights between Europe and North America.

Oil rose on Wednesday, supported by a weaker dollar, strong Chinese manufacturing data and a fall in U.S. crude and winter fuel stocks, easing a surplus that has weighed on the market for months.

European stocks were down 0.6 percent in morning trade, led lower by banking shares such as Deutsche Bank (DBKGn.DE) and Societe Generale (SOGN.PA) on renewed concerns over the health of the sector, while shares of fashion retailer H&M (HMb.ST) tumbled 6 percent after surprisingly weak margins for the third quarter rattled investors. (.EU)

Companies expected to report quarterly results on Wednesday include Family Dollar (FDO.N), while the macro front will be quiet, with only the weekly mortgage market index expected on Wednesday.

JPMorgan Chase & Co (JPM.N) plans to triple its private banking assets in Asia over the next five years, a company spokesman confirmed on Tuesday.

Shares of Green Mountain (GMCR.O) fell 10.5 percent to $33.01 in extended trading on Tuesday on news that the SEC has informed it was conducting an inquiry on the company.

U.S. stocks rose on Tuesday as latecomers jumped onto the September bandwagon, buying up sectors that have outperformed during the month.

The Dow Jones industrial average (.DJI) gained 46.10 points, or 0.43 percent, to end at 10,858.14. The Standard & Poor's 500 Index (.SPX) rose 5.54 points, or 0.49 percent, to 1,147.70. The Nasdaq Composite Index (.IXIC) advanced 9.82 points, or 0.41 percent, to 2,379.59.

(Reporting by Blaise Robinson; Editing by Hans Peters)

SEWANEE, Tennessee (Reuters) � A top Federal Reserve official said on Tuesday that he has yet to make up his mind whether further ease monetary policy is needed, despite a weakening U.S. economy and some risk of deflation.

Even with the risk of deflation, a vicious cycle of falling prices and weak economic activity, Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said that given disagreements about the reasons behind the economic slowdown, the best policy prescription is not yet clear.

"There is growing sentiment that further accommodation through large asset purchases is coming," Lockhart told reporters after a speech at the University of the South, in Sewanee, Tennessee.

"For me, at this moment it's not a foregone conclusion that we need to go there."

Setting himself near the middle of the central bank's hawk-dove spectrum on the need to curb inflation, Lockhart indicated he is interested in hearing the arguments from both those who believe further accommodation should be forthcoming and those who think it might not be very effective, or even potentially detrimental.

Lockhart, a former banker who is not a voter this year on the Fed's policy-setting committee, said he believes the recent slowdown in the economy is temporary.

In response to the worst recession in generations, the Fed, in addition to slashing interest rates to near zero percent, bought some $1.7 trillion in government and mortgage-related bonds in an effort to bring down long-term rates and spur borrowing.

The move has achieved mixed success. The U.S. economy did begin to recover in the summer of 2009, but the pace of expansion slowed sharply to a 1.6 percent annualized pace in the 2010 second quarter.

"Growth at this anemic level is unlikely to generate enough new jobs to bring down unemployment to any significant degree," Lockhart said.

The jobless rate in August ticked up to 9.6 percent, as a modest spurt of hiring induced some discouraged workers to reenter the labor force. At the same time, underlying inflation has been running below the Fed's comfort level -- a trend .

Against this backdrop, the Fed has been considering further action, indicating at its meeting last week that it was prepared to do more if the economy continues to sputter.

"The slowing of the economy in the middle of this year, combined with a very low measured rate of inflation, suggests to me the risk of deflation cannot be dismissed," Lockhart said.

Lockhart said his business contacts have told him that uncertainty, both about the economic outlook and government policies, has also contributed to a reluctance to make new investments and hire new workers.

Fed Board Governor Kevin Warsh touched upon a similar theme in remarks during a panel on the role of capital markets generating employment.

"Markets are normalizing if not normal, the economy is improving if not improved, and policies that come from the fiscal authorities, the trade authorities, the regulatory authorities need to be growth friendly," he said.

LONDON (Reuters) � BP's (BP.L)(BP.N) incoming Chief Executive Bob Dudley will announce a management shakeup in the company's core exploration and production unit, following the Gulf of Mexico oil spill, Sky television said on Wednesday.

Reuters previously reported that company insiders expected a shakeup that would cost the head of Exploration and Production (E&P), Andy Inglis, and chief operating officer for E&P in the United States, Doug Suttles, their jobs.

Sky said a statement announcing changes, including Inglis's removal was likely in the next few days, citing unnamed sources.

BP declined to comment.

(Reporting by Tom Bergin; Editing by Erica Billingham)

WASHINGTON (Reuters) � The House of Representatives is poised on Wednesday to pass legislation to pressure China to let its yuan currency rise more quickly, fanning the flames of a long-running dispute over trade and jobs.

The House is expected to approve, with bipartisan support, a bill to treat China's exchange rate as a subsidy, opening the door to additional duties on Chinese goods entering the United States, some of which are already subject to special levies.

But the measure must gain Senate approval and be signed into law by President Barack Obama -- by no means a sure bet.

U.S. lawmakers have long brandished the sword of trade retaliation for what they see as China's deliberate policy of undervaluing the yuan, which they say gives its exports an unfair edge in global markets, but have never sent the president any legislation to be signed into law.

President Barack Obama and Chinese Premier Wen Jiabao discussed China's currency and huge trade surplus with the United States during a meeting on the sidelines of the U.N. General Assembly last week, aides said, but declined to discuss the sensitive issues with reporters after the meeting.

The House move, little more than a month before U.S. congressional elections, is certain to further roil relations with Beijing, which resents the criticism and says it is its decision alone how fast to proceed with currency reforms.

In another brewing trade row, more than 180 U.S. lawmakers urged President Barack Obama on Tuesday to fight back against what they called China's "unfair" tactics to spur development of clean energy technologies within its borders.

PATIENCE WEARING THIN

Representative Tim Murphy, a Republican who helped craft the bill, said on Tuesday patience with China has run out.

"We cannot rely on the Chinese government to voluntarily do the right thing. ... The expiration date for appeasement has long since past," Murphy said in a speech predicting the currency bill would pass with bipartisan support.

The White House has not taken a position on the bill, although House Majority Leader Steny Hoyer said lawmakers had worked with the Obama administration to make sure the legislation did not violate World Trade Organization rules.

The outlook for Senate approval is also uncertain, but supporters are pushing for a vote when lawmakers return from November 2 elections.

After holding the yuan steady against the dollar through the financial crisis, Beijing began to allow for an upward drift against the dollar on June 19. It has now risen about 2 percent, far short of what U.S. lawmakers want to see.

U.S. Treasury Secretary Timothy Geithner told Congress two weeks ago the United States would work with other Group of 20 nations to push China to let the yuan strengthen faster.

G20 leaders are set to meet in Seoul November 10-11. That would give U.S. senators time to gauge any further moves from China before deciding what to do with the legislation.

Brazil's central bank governor Henrique Meirelles said on Tuesday he agreed G20 leaders should address global currency imbalances at their next summit. But many G20 countries are reluctant to specifically discuss the yuan.

The House legislation reflects long-standing concern that China deliberately undervalues its currency by as much as 25 to 40 percent to give its companies an unfair trade advantage that has cost American jobs.

It addresses that issue by allowing the Commerce Department to treat "fundamentally undervalued currencies" as an illegal export subsidy so U.S. companies can request a countervailing duty to offset China's price advantage.

Passage of the bill would further strain an already complex and difficult but vital diplomatic relationship between two of the world's economic heavyweights.

In recent months, Washington and Beijing have also sparred over Chinese government procurement policies, Internet censorship, U.S. arms sales to Taiwan and U.S. sympathy for the Dalai Lama, the exiled Tibetan spiritual leader.

Bilateral ties have been complicated by tensions between China and its neighbors South Korea and Japan, who are U.S. security allies. U.S. support for Southeast Asian countries with competing territorial claims with China in the South China Sea is also a point of Sino-American contention.

Senator Sherrod Brown, an Ohio Democrat, said he expected the Senate to vote on the House bill or a similar package after lawmakers return to Washington in November.

MANY FARM GROUPS WANT BILL REJECTED

Whether that happens could depend on the size of the vote in the 435-member House, said Charlie Blum, executive director of the Fair Currency Coalition, an association of steel, textile and labor groups that have pressed Congress for years to deal with the currency spat.

"I think (the vote) will be large. It will be bipartisan. The WTO issue looks like it's under control, which certainly helps," Blum said. "It also depends on what the Chinese do. So far they've been our biggest ally by not moving very much."

But many other major farm and business groups want the bill rejected, fearing it could lead to retaliation and make China unwilling to address other U.S. trade concerns.

"Above all this legislation will do more harm than good to job creation and economic growth at a time when we need both dearly," the U.S. Chamber of Commerce and 35 other groups said in a letter to congressional leaders.

House Democrats are pushing the China bill as part of their "Make it in America" agenda to revive U.S. manufacturing.

But Representative Dave Camp, the top Republican on the powerful House Ways and Means Committee, supported the bill during a panel vote last week and other Republicans from industrial states are expected to follow suit.

Many lawmakers may believe a tough stance on China could help them at the polls at a time when the U.S. unemployment rate stands at a painfully high 9.6 percent.

(Additional reporting by Susan Cornwell; Editing by Todd Eastham)