>>Obama wades into budget battle in US states

The International Monetary Fund called for a weaker dollar to help the United States reduce its deficits with the rest of the world and rebalance the global economy, in a report released Wednesday.

The International Monetary Fund called for a weaker dollar to help the United States reduce its deficits with the rest of the world and rebalance the global economy.

In the report prepared for a Group of 20 finance chiefs meeting last week, the IMF said that its calculations showed the dollar remains "on the strong side" of medium-term fundamentals, while the euro and the Japanese yen were "broadly in line" and several Asian currencies, including China, were undervalued.

To address global imbalances, the G20 should allow the dollar to fall, the Washington-based institution said.

"Some further real effective depreciation of the US dollar would help ensure a sustained decline of the US current account deficit towards a level more consistent with medium-term fundamentals, helping to support more balanced growth," the IMF said.

The widening US current account deficit -- a broad measure of trade in goods, services, income and payment -- rose a fifth straight quarter in the third quarter last year, to $127.2 billion, according to the latest US official data.

The issue of a weak dollar is particularly sensitive in Brazil, where the government has said an international "currency war" is under way with the United States pumping cheap dollars into its post-crisis economy, while China\'s yuan sinks in tandem.

The IMF report was provided to finance ministers and central bank governors of the G20 major developed and emerging economies for their meeting Friday and Saturday in Paris.

The G20 countries reached agreement on a series of economic indicators to measure imbalances within and between countries, with the goal of helping nations avoid a repeat of the problems at the heart of the 2008 financial crisis.

The IMF urged stepped-up G20 efforts to sustain the global economic recovery, citing elevated downside risks for advanced economies and "overheating" in some emerging economies.

Among the threats to global growth, the IMF highlighted "insufficient progress in developing medium-term fiscal consolidation plans, especially in the United States and Japan" and "sovereign and banking sector risks in the euro area periphery."

In emerging economies, the key policy challenge is to keep overheating pressures in check and respond appropriately to capital inflows, the IMF said.

"In key surplus economies, overheating pressures can be alleviated by permitting currency appreciation, facilitating a healthy rebalancing from external to internal demand."

The 187-nation institution also said it "appears highly unlikely" the United States would be able to meet its commitment to halve its budget deficit between 2010 and 2013, pledged at a G20 Toronto summit in June 2010.