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Luxembourg says talking with China about mutual fund recognition

LUXEMBOURG, Feb 26 (Reuters) - Luxembourg is talking to China about allowing mutual recognition of investment funds based in the two countries, a senior Luxembourg official said on Wednesday.

Such an agreement would boost the European financial centre's bid to be a major hub for the offshore renminbi, or yuan, currency, which China is liberalising with the eventual aim of establishing a fully convertible currency.

China and Hong Kong are thought to be in the final stages of a mutual fund recognition programme, which allows funds domiciled in Hong Kong to be sold in China and vice versa.

A similar programme for Luxembourg would put it in direct competition with Hong Kong, the world's largest offshore renminbi centre.

"We are not in formal talks but we are talking about it," Nicolas Mackel, chief executive of Luxembourg for Finance, told a news conference on the sidelines of a conference on the offshore renminbi.

"We will look at it with the Chinese - it is a topic that is on the table."

Luxembourg finance minister Pierre Gramegna is leading a delegation to China later in the year to discuss offshore renminbi issues. He said earlier on Wednesday that more Chinese banks were hoping to set up in the euro zone state.

Luxembourg is also competing with other European financial centres such as London for a piece of the offshore renminbi pie, as well as Asian centres such as Hong Kong and Singapore.

Renminbi-denominated assets held in Luxembourg-domiciled investment funds total 256.4 billion yuan ($42 billion) and the country says it has the largest deposit pool in Europe, at 64 billion yuan.

But London is the world's biggest foreign exchange market and is talking with China about setting up a yuan clearing bank. ($1 = 6.1266 Chinese yuan)

(Reporting by Carolyn Cohn; Editing by Catherine Evans/Ruth Pitchford)