Leaders of the G20 group of major economies have agreed to avoid “competitive devaluation” of currencies after talks concluded in the South Korean capital, Seoul.

Leaders agreed to come up with “indicative guidelines” to tackle trade imbalances affecting world growth.

Tensions had been high between some delegations over how to correct distortions in currency and trade.

But the agreement fell short of a US push to limit trade deficits.

Some fear the conflict, chiefly between China and the US, may threaten global growth.

US President Barack Obama said there should be no controversy about fixing imbalances “that helped to contribute to the crisis that we just went through”.

“Exchange rates must reflect economic realities,” he said.

“Emerging economies need to allow for currencies that are market-driven. This is something that I raised with President Hu of China and we will closely watch the appreciation of China’s currency.”

Analysis

Andrew Walker Economics correspondent, BBC World Service

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Some of what the G20 agreed had already been done by their finance ministers – the commitment to refrain from competitive devaluations, for example. The summit did not manage to harden that up, as had been suggested, with a promise to avoid competitive undervaluation. That would have put more pressure on.

On the related issue of global imbalances, which is partly about international trade, they agreed to develop indicators to show when imbalances need to be reduced. That work is due next year.

It is progress but slow, rather like China’s commitment to move to a market-based exchange rate. They say they will do it, but in their own time, in other words not tomorrow. So there was no breakthrough in these key areas, but the very public endorsement of political leaders perhaps gives a little more weight to such commitments as they have made.

Washington says that China’s currency, the yuan, is artificially weak and gives Chinese exporters an unfair advantage as well as leading to Beijing amassing huge foreign reserves.

However, Chinese officials argue that Beijing has an “unswerving” commitment to reform its currency regime, but that global economic stability is needed to achieve it.

UK Prime Minister David Cameron said progress was being made on the issue of imbalances.

“Slowly, slowly China is moving into a position of actually increasing domestic consumption, rebalancing its economy,” he said.

However, the agreement to develop new guidelines to prevent so-called “currency wars” fell well short of the 4% limit on national trade deficits and surpluses proposed by the US, which had been blocked by China and Germany – the world’s two largest exporters.

“This was never going to be solved overnight,” Mr Cameron added.

And South Korea President Lee Myung-Bak admitted that “on the foreign exchange rate issue, principles were agreed at the finance ministers’ meeting, but there was no word on when and up to how much we will implement them”.

‘Fractious’ negotiations

The G20 leaders also gave their backing to reforms designed to give emerging economies such as China a bigger say in the International Monetary Fund.

UK Prime Minister David Cameron says China rebalancing its economy is “good news”

In their communique, leaders said they were delivering “a modernised IMF that better reflects the changes in the world economy through greater representation of dynamic emerging markets and developing countries”.

UK sources say that officials from the UK, France and Russia had to be called in the early hours of this morning after “fractious” negotiations between China and the US broke down in “acrimony”.

But at the end of the summit, the European Union said in a statement that it was “satisfied” with the outcome.

The G20 also committed itself to completing soon the long-running Doha Development Round of global trade talks, saying that 2011 presented a “critical window of opportunity, albeit narrow” to conclude the discussions.

And it signed the Seoul Development Consensus for Shared Growth, committing it to work in partnership with other developing countries on trade, development and investment.

As Irish bond yields reached a fresh high, leaders discussed the Irish Republic’s debt crisis amid concerns that the European Union will have to step in.

“Any new [bail-out] mechanism would only come into effect after mid-2013 with no impact whatsoever on the current arrangements,” finance ministers from the five countries said in the declaration.

The statement seemed to have an impact on the bond market, with Irish bond yields dropping to 8.2%, down from the record high of 8.95% reached on Thursday.

But world stock markets fell in Friday trading as investors worried about Irish government debt, as well as possible measures in China to tackle inflation.

US President Barack Obama has held up Indonesia as an example of how a developing nation can embrace democracy and diversity.

He was speaking in Jakarta on a visit to the world’s largest Muslim nation.

Mr Obama said innocent people across the world were still targeted by militants but emphasised that the US was not at war with Islam.

Analysts say it is his biggest attempt to engage the Islamic world since a speech in Cairo last year.

Mr Obama was speaking at the University of Indonesia, before an audience of 6,000 people.

‘Shared values’

In his address, he touched on the four years he spent in the country as a child and emphasised the importance of Indonesia’s example as a growing economy and a majority-Muslim nation that is largely tolerant of other religions.

“Today, I return to Indonesia as a friend, but also as a president who seeks a deep and enduring partnership between our two countries,” he said.

“Because as vast and diverse countries; as neighbours on either side of the Pacific; and above all as democracies – the United States and Indonesia are bound together by shared interests and shared values.”

He also highlighted the role religion had played in Indonesia’s development, praising the country’s spirituality and “rich diversity”.

“Just as individuals are not defined solely by their faith, Indonesia is defined by more than its Muslim population,” he said.

“But we also know that relations between the United States and Muslim communities have frayed over many years. As president, I have made it a priority to begin to repair these relations.”

He said more work needed to be done to address “the issues that have caused tensions for many years” but appealed for unity to defeat “violent extremists”.

“I have made it clear that America is not, and never will be, at war with Islam,” he said.

“Instead, all of us must work together to defeat al-Qaeda and its affiliates, who have no claim to be leaders of any religion – certainly not a great, world religion like Islam. But those who want to build must not cede ground to terrorists who seek to destroy. This is not a task for America alone.”

Difficulties

The president also revisited some of the themes he raised in his June 2009 speech in Cairo: the conflicts in Iraq, Afghanistan and between Israel and the Palestinians.

In a reminder of the difficulties he faces on that last front, Israel decided to build more apartments for Jewish settlers in disputed East Jerusalem.

Peace talks between Israel and the Palestinians resumed in September after a break of almost two years but were suspended after a few weeks when a freeze on the building of Jewish settlements expired.

When Mr Obama delivered his Cairo speech he was riding a wave of goodwill, says the BBC’s Middle East analyst Roger Hardy. But since then, the mood has changed. Recent polls show that in key parts of the Muslim world his credibility has slumped.

Mr Obama had earlier addressed many of the same themes in a wide-ranging news conference with President Susilo Bambang Yudhoyono.

The president’s short trip has afforded him little leisure time, but before the university speech Mr Obama and his wife Michelle managed a visit to Jakarta’s Istiqlal mosque, the largest in South-East Asia.

He has been forced to leave Indonesia about two hours early so his flight can outrun the volcanic ash cloud thrown up by the recent deadly eruption of Mount Merapi.

Indonesia is the second stop on his four-nation tour of Asia after India. The next stops are South Korea for the summit of G20 leaders and finally Japan.

The US and Indonesia are to expand co-operation on economic issues, security and climate change, the presidents of both countries have said.

US President Barack Obama said the US and Indonesia would expand trade relationships and increase prosperity.

He criticised the recent elections in Burma and called for the release of pro-democracy leader Aung San Suu Kyi.

Mr Obama, who lived in Indonesia in his youth, will also speak at South East Asia’s largest mosque while in Jakarta.

The speech, to be delivered on Wednesday, will be his most high-profile attempt to engage the Islamic world since a landmark speech in Cairo in June 2009.

However, the White House says the president will probably have to cut short his visit by a few hours because of concerns over volcanic ash from Mount Merapi, which could disrupt flights.

Speaking in Jakarta, Mr Obama said he had worked hard to repair ties with Muslim communities but warned that some “misunderstandings and mistrust” were likely to remain.

In a wide-ranging news conference with President Susilo Bambang Yudhoyono, Mr Obama also criticised Israel’s plan to build apartments for Jewish settlers in disputed East Jerusalem.

“This kind of activity is never helpful when it comes to peace negotiations,” Mr Obama said.

Peace talks between Israel and the Palestinians resumed in September after a break of almost two years but were suspended after a few weeks when a freeze on the building of Jewish settlements expired.

Mr Obama also referred to his childhood times in Jakarta, saying: “I will tell you, though, that I barely recognised it as I was driving down the streets. The only thing that was there when I first moved to Jakarta was Sarinah (a shopping mall). Now it’s one of the shorter buildings on the road.”

Memories:

Mr Obama said Indonesia had “figured out how to create a genuine democracy” with a hugely diverse population.

Washington and Jakarta would also work together on climate change, he said.

Mr Obama has twice postponed this visit because of domestic problems.

He is also visiting at a time when Indonesia is trying to recover from two natural disasters – the eruption of Mt Merapi, which has killed more than 130 people, and a tsunami that struck the Mentawai islands, killing more than 400 people and forcing thousands into emergency shelters.

The trip will provide little time for nostalgia in a country where the president spent four years as a boy with his late mother. Mr Obama attended schools in Jakarta between the ages of six and 10.

However, he did manage to greet officials who met him at the airport with a few words in Indonesian.

He added: “It’s wonderful to be here although I have to tell you that when you visit a place that you spent time in as a child, as the president it’s a little disorientating.”