* IMF lifts 2017 growth forecast to 6.7 pct from 6.6 pct in April
* Sees annual economic growth averaging 6.4 pct for 2018-2020
* Says China must accelerate reforms, keep focus on finance risks Deputy MD: credit should back activities supporting real growth (Adds quotes, details on IMF view)
BEIJING, June 14 (Reuters) - The International Monetary Fund on Wednesday raised its forecast for China's 2017 economic growth to 6.7 percent, its third increase this year, citing "policy support, especially expansionary credit and public investment".
In April, the IMF hiked its forecast for this year to 6.6 percent from January's 6.5 percent, which was 0.3 percentage points above the previous projection.
China's economy grew a faster-than-expected 6.9 percent in 2017's first quarter, well above the government's target of around 6.5 percent for the full year.
The IMF said it now expects China's growth to average 6.4 percent annually during 2018-2020. In April, the fund said it expected 2018 growth to be 6.2 percent.
Along with a higher growth forecast, the IMF on Wednesday recommended China speed up reforms to transition its economy to more sustainable growth and adopt less accommodative monetary policy.
"The critically important recent focus on tackling financial sector risks should continue, even if it entails some financial tensions and slower growth," IMF deputy managing director David Lipton told reporters in Beijing.
China needs to ensure that "where credit is granted, it is backing economic activity that will be useful, that will be supportive of growth and will permit debts to be serviced without difficultly," he said.
Beijing should also resume progress towards a flexible exchange rate, Lipton said, while adding that the IMF assesses the yuan currency to be "broadly in line with fundamentals".
The strengthening U.S. economy, albeit with normalising interest rates, is likely to be useful for the rest of the world, Lipton said.
The IMF official said President Xi Jinping's speech at Davos in January was the start of China playing "a kind of leadership role at a time when there is a dialogue going on around the world about the path of globalisation." (Reporting by Sue-Lin Wong, Judy Hua and Elias Glenn; Editing by Kim Coghill and Richard Borsuk)