BRUSSELS, Oct 2 Europe will push for a tougher stance on exchange rate volatility from fi

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BRUSSELS, Oct 2 (Reuters) Europe will push for a tougher stance on exchange rate volatility from finance ministers and central bankers of the Group of Seven later this month to help stop the euro's surge against the U.S. dollar, EU sources said.

Euro zone finance ministers and the European Central Bank, the Eurogroup, will discuss their common position for the G7 meeting on Oct. 8 in Luxembourg amid great concern about the fall of the dollar to record lows against the euro.

''I don't think anybody would say there is a huge margin for further euro appreciation against the dollar and the yen,'' one source close to the preparations of the Eurogroup meeting said.

''The meeting is next week, but I would be surprised if anybody was saying 'that's just fine','' the source said.

Eurogroup Chairman Jean-Claude Juncker said last week there was great concern about the weakness of the dollar.

''The objective is to get stronger language out of the G7,'' a second source close to the preparations of the Eurogroup said.

The euro hit record highs above $1.4280 on Monday amid market expectations of further rate cuts in the United States to boost the slowing economy and stable ECB rates.

While the euro's strength has yet to show in trade figures, Europe's businesses have said it has reached the pain threshold.

France has long complained about the strong euro and the currency's recent gains may ease its isolation on the issue.

''Hardly anybody will publicly say that they agree with the French, but there is a certain degree of uneasiness creeping in,'' a third source involved in preparation of the Eurogroup meeting.

''Beyond $1.40 it is simply starting to hurt.'' Juncker was still sanguine about the euro's strength at the last meeting in mid-September saying he preferred a strong currency to a weak one, but the euro was then at $1.3920.

EU NOT ALONE The weakness of the dollar will feature on the agenda of the next G7 meeting on Oct. 19-21 in Washington and sources said that Europe may not be alone in pushing for sharper language on exchange rates in the final G7 communique.

The G7 comprises finance ministers and central bankers from the United States, Canada, Japan, Britain, France, Germany and Italy.

Juncker and ECB chief Jean-Claude Trichet also attend.

''What is expected at the next G7 this time is not only a European problem, but other G7 partners are equally affected by this -- notably Britain and Canada with respect to the dollar,''the first source said.

''I would be surprised if the exchange rate issue would only come up because Europeans would insist on his, others may also want to say something on this,'' the source said.

Like the euro, both the British pound and Canadian dollar have risen to record highs against the dollar, hurting exporters. There were consultations at technical level with Britain on a common position for the G7, one source said.

''If there were majority voting in the G7, there would probably be a majority, not to ask for depreciation, but to ask for stability, a stop to the volatility that has been present in markets. But G7 statements have to be signed by everybody,'' the first source said.

Earlier this year, U.S. Treasury Secretary Henry Paulson gave short shrift to Europe's attempt to use a G7 communique in more forceful fashion to influence currency markets.

Juncker has called on Washington to curb its current account deficit to back up earlier declarations that the U.S. government wanted a strong dollar.

He also said the Chinese and Japanese should act so Europe would not be alone in footing the bill for global savings and trade imbalances through painful exchange rate adjustments.

Many see more flexibility in the Chinese exchange rate regime, now pegged to the dollar in a narrow band, as the key to easing the burden on European companies.

But the Chinese are not at the G7 table and public pressure on Beijing could prove counterproductive.

''There is a clear trend among euro zone members to step up the language (of the final G7 statement) but on the other hand there is a strong realisation that the more you talk about the Chinese in public the less you get,'' the third source said.

Although the steep fall of the dollar is seen by many as part of an orderly unwinding of global imbalances, it would not hurt to hear the U.S. repeat that a strong dollar was in its interest to make the adjustment less volatile, the sources said.

''By reassuring investors or making them uncomfortable you can have an influence,'' the first source said.

''If the message that they want a strong dollar is repeated and perceived by markets as credible and backed up by other things coming out of Washington, then -- yes -- that is one of the messages.'' REUTERS PBB PM1700

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