MELBOURNE (Reuters) – Financial leaders from top developed and emerging economies expressed confidence in growth prospects on Saturday, but tensions emerged over foreign exchange rates and nagging trade imbalances.

Finance ministers and central bank governors from the Group of 20 (G20) met to tackle a range of economic flashpoints, from stalled trade talks to oil prices to China’s yuan.

Australian Treasurer Peter Costello, whose country is hosting the event, said ministers were optimistic as the United States, Europe and Japan were all expanding.

“There was an agreement that the prospects for the global economy are very strong,” Costello told reporters after a break in the first day’s sessions.

The head of the International Monetary Fund, Rodrigo Rato, said healthy global growth was on track although he pointed to the need for continued vigilance on inflation.

As ministers and central bankers met, a small group of protesters clashed with police in Australia’s second city, overturning barricades and storming a police riot truck. They smashed the truck’s windows and threw bottles at police.

About 5,000 people marched in the streets shouting slogans such as “Stop G20” in an otherwise peaceful day of protest.

The finance chiefs themselves did not clash publicly but there were signs of tension on the most contentious issue up for discussion — China’s currency and growing trade imbalances.

Critics of China, particularly from the United States, have charged that Beijing keeps the currency unfairly cheap to boost exports and this increases trade imbalances.

China revalued the yuan by 2.1 percent in July 2005 and cut it from a decade-old dollar peg. It has since risen nearly another 3 percent.

But Costello said no country had said it believed its currency was undervalued, a tacit sign that China had not accepted complaints that the yuan was too weak. “Some feel their currencies are a little high, but none felt their currencies were too low,” he said.

U.S. Deputy Treasury Secretary Robert Kimmitt had said ahead of the meeting he expected to discuss the yuan with China’s central bank governor, Zhou Xiaochuan.

Zhou, in a briefing, said he had not felt pressure from other countries and added China was in a better position to press ahead with foreign exchange reform, including more yuan flexibility.

“Up to now, there’s no pressure,” Zhou said, when asked whether he expected calls for movement on the yuan.

The head of the People’s Bank of China said the country’s financial sector was much stronger than three or four years ago, making it easier for firms to accept currency and interest rate reforms.

As China has posted record trade surpluses, its foreign reserve stockpile has surged to more than $1 trillion, creating a fresh worry for economic leaders: the possibility that it would diversify out of the dollar and trigger wild currency swings.

Zhou said the central bank began diversifying its reserves years ago after the 1997-98 Asian financial crisis, but he said he could not be specific about the makeup of reserves.

“I am sorry to say we don’t disclose details in diversification,” he said, saying only that China sought to have safety and liquidity while still achieving reasonable returns.

Rato of the IMF focused on the risk of inflation, despite the past few months’ declines in the price of oil.

“We see a need for central bankers, not only in industrialized countries but certainly in emerging ones, to be extremely vigilant on inflationary pressures.”

Rato said he saw no sign oil prices would fall any time soon, a warning underscored by a new report from U.S. investment bank Lehman Brothers that saw crude prices averaging about $72 a barrel next year, well above current levels below

$60.

Crude oil prices, driven in part by rapid industrialization in China and India, reached a record near $80 a barrel this year before retreating.

Rato also said the longer prices stay high the greater the inflationary risks and the more it will sap domestic spending power. “We see very strong demand, and strong demand will continue, not only in China and India, but in the developed countries.”

Rato said stronger-than-expected growth in the euro zone was helping offset a slowing in the United States and he saw room for further tightening by the European Central Bank (ECB).

“We see a need for the monetary authorities in Europe to move toward neutrality but we do not see a need for a restrictive monetary policy, certainly not now,” he said.

The ECB, whose benchmark rate is 3.25 percent, is expected to raise rates to 3.5 percent next month, a level that many analysts say is the beginning of a neutral range.

The IMF forecasts 5.1 percent global growth in 2006 and 4.9 percent growth in 2007, marking a fifth year of the best economic growth in a generation.