Sept. 17 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson and French Finance Minister Christine Lagarde united in campaigning for China to let its currency strengthen.

``We have a total convergence of views that the Chinese currency is undervalued compared to the European and U.S. currencies,'' Lagarde told reporters after meeting Paulson in Paris today. Paulson said China's failure to let markets set the yuan's value ``is going to continue to be an issue.''

Since his May election, Nicolas Sarkozy has intensified French calls for China to let the yuan rise, echoing those made for the past five years by U.S. President George W. Bush. Both governments are concerned weakness in the yuan threatens their economic expansions and fuels disparities in global trade.

The French criticism of China has picked up as the euro rose to a record against the dollar and second-quarter growth slowed. ``France is now much closer to the U.S. on the yuan,'' said Gilles Moec, an economist at Bank of America Corp. in London. ``We're going to see more complaints from Paris as the euro creeps higher and hurts growth.''

Previously, France sought to qualify its concern over the yuan. Former Finance Minister Thierry Breton said in 2006 that China should ``move at its own pace'' and that ``the currency is the sovereignty of China.''

Paulson welcomed Lagarde's comments. ``It's helpful to have the major economic players express their view,'' he said.

Yuan's Gains

The French now complain the yuan's gains since July 2005 have not been broad enough, as it has risen 10 percent against the dollar and fallen 5.1 percent versus the euro. That's starting to hurt exporters in the 13 euro nations. The region's trade shortfall with China expanded to 43 billion euros in the five months through May, up 23 percent from a year earlier.

Lagarde's comments may reinforce the message Paulson has been delivering during 14 months at the Treasury and four visits to China in that time. He has sought to persuade China's leaders that a more flexible currency would help them better manage their economy and cool protectionist sentiment brewing in the legislatures of its biggest trading partners.

``It's very much China's interest to have a currency that reflects economic fundamentals,'' Paulson said.

In the U.S. Congress, lawmakers including Senator Charles Schumer, a New York Democrat, argue that China is keeping its currency weak to boost exports, and are threatening to impose sanctions unless the policy is changed. The U.S.'s trade deficit with China swelled to $141.3 billion through July, a 16 percent jump from the same period in 2006.

Call for `Balance'

The two ministers also agreed that financial markets should be subjected to greater transparency following the rout sparked by a collapse in the market for U.S. home loans to borrowers with poor credit histories.

Paulson cautioned against an overreaction, arguing policy- makers should find a ``balance'' before imposing greater oversight. ``I am leaning against the wind a little bit because I don't want to act in a way that would penalize the global economy for years to come,'' Paulson said.

Asked about criticism from U.K. Chancellor of the Exchequer that U.S. policymakers were to blame for not spotting weaknesses in their subprime mortgage market, Paulson said he isn't ``eager to start pointing fingers.'' Paulson and Darling are scheduled to meet in London later today.

Lagarde said the health of French banks is ``very good especially compared to German banks.''

To contact the reporters on this story: Kevin Carmichael in Paris at kcarmichael@bloomberg.net; Helen Fouquet in Paris at hfouquet1@bloomberg.net

Last Updated: September 17, 2007 05:46 EDT