By Juliane von Reppert-Bismarck

BRUSSELS, Oct 6 (Reuters) - The European Union pressed Chinaon Wednesday to amend its trade practices to stop technologytheft, counterfeiting and discrimination against foreign firmsafter failing to make Beijing budge on its exchange rate.

Opening a day-long summit with Chinese Premier Wen Jiabao,European Commission President Jose Manuel Barroso said theEU-China commercial relationship, worth 327 billion euros ($453billion) in 2009, was one of the most important in the world andvital for the global economy.

German Chancellor Angela Merkel, leader of Europe's biggestexport powerhouse, met Wen on Tuesday evening and pledged towork for China to be granted the 27-nation EU's coveted "marketeconomy" trade status by 2016.

That would give Beijing better protection against Europeananti-dumping penalties -- a major irritant for the Chinese.

But EU Trade Commissioner Karel de Gucht set out a litany ofEuropean grievances on which he said China must make progress ifit wanted that status before it automatically receives it in2016 under World Trade Organisation rules.

"This question must be considered on the basis of clearcommitments, for example, on access to the Chinese market,public procurement, protection of intellectual property and eventhe exchange rate," De Gucht told French daily Le Monde.

Euro zone policymakers urged Wen on Tuesday to allow theyuan to rise more rapidly. But he politely rebuffed them,repeating Beijing's standard line on seeking currency stability.

The monetary dialogue came against a backdrop of growingglobal "currency wars" in which major industrial nations such asJapan and the United States are seeking to weaken their exchangerates while emerging economies such as Brazil and South Koreaare taking or threatening measures to curb capital inflows.

SANCTIONS?

Separately on Wednesday, the EU signed a free tradeagreement with South Korea, its first such pact with an Asianpartner, after announcing on Tuesday the launch of negotiationsfor a similar accord with Malaysia.

With the Doha round of global trade liberalisation talks atan impasse, Brussels is increasingly looking to bilateral andregional trade agreements as a way forward to boost commerce,especially with fast-growing Asian economies.

The United States urged the EU this week to join it inhigh-level pressure on China to change policy on intellectualproperty rights and foreign investment.

While some European business leaders want the EU to developnew trade defence instruments that could be used as leverage tochange Chinese practices, others are dead against suchsanctions, which would anyway divide member states.

Arnaldo Abruzzini, secretary-general of Eurochambres, theassociation of European chambers of commerce, said the EU shoulduse its position as China's number one trade partner to forceBeijing to reach agreements on counterfeiting.

"They are really stealing the value of our business," hesaid. "The idea to have a sort of EU-wide embargo of theirproducts is something we should put on the table. The EU hasthat potential weapon." But Marc Stocker, chief economist at the main EU industryumbrella group, BusinessEurope, said Europe should resist callsto join a recent move by the U.S. Congress to impose tradesanctions on China for failing to revalue the yuan.

"We don't have such complaints about the currency in ourcommunity right now," Stocker told journalists.

"Trade retaliation is as such not a good response," he said.

The EU's trade deficit with China fell to 133.1 billioneuros in 2009, from 169.5 billion euros in 2008, largely due tothe global economic downturn.

But EU industry has warned China will benefit from Europe'seconomic recovery, cranking up its production capacity to supplyEuropean demand for cheap industrial inputs and consumer goods,and encroaching on traditional European high-tech markets.

In recent months the EU has launched several anti-dumpingcases that could result in steep tariffs against Chinese-madeproducts from fibreglass used in the production of wind turbinesand lightweight cars to car wheels and wireless modems.De Gucht said Europe was considering taking stronger powersto demand reciprocal treatment in government contracts.

"We must demand reciprocity because we must not be naive ...In the framework of our instruments to defend trade, we areworking on the possibility of banning access to our publicmarkets, in the case of restrictions in a third country," hesaid.

But diplomats said any attempt to use such measures againstChina would likely founder on differences of interest amongmember states, pitting free traders such as Britain and Swedenagainst more protectionist-leaning nations such as France andItaly, with Germany defending its key Chinese growth market.

Wen was due to address an EU-China business forum, beingheld in parallel with the summit, and hold a joint newsconference with EU leaders at 1515 GMT.

(Writing by Paul Taylor, editing by Mark Heinrich)