Corrected - IMF staff urges no rush to add China yuan to currency basket

(Corrects bullet point to show decision on timing of when to add yuan to basket not taken yet)

WASHINGTON (Reuters) - The International Monetary Fund should put off any move to add the yuan to its benchmark currency basket until after September 2016, IMF staff said in a report which showed a mixed performance of the renminbi on meeting key financial norms.

The report, published on Tuesday, comes after Beijing launched a major diplomatic push for the yuan to be added to the IMF's Special Drawing Rights basket as part of its long-term strategic goal of reducing dependence on the dollar.

The IMF board is scheduled to make a decision in November on whether to include the yuan in a basket of currencies comprising dollars, euros, pounds and yen, although the decision could be pushed back if policymakers decide they need more information.

Delaying any change in the basket for nine months through September 2016 would avoid disrupting financial market trading on the first day of the new year, the staff report said. A senior IMF official said reserve asset managers would need about six months notice to adjust to a change.

The yuan, also known as the renminbi, meets the requirements as a significant currency in terms of international trade, but also has to be judged to be "freely usable", or widely used to make international payments and readily traded on foreign exchange markets.

The report shows a mixed performance on financial criteria. Although the currency is increasingly used in cross-border transactions and heavily traded in Asia, it is only thinly traded in North America and is not commonly used in international debt securities. Data was missing for some variables, the report said.

The senior IMF official said there was no set checklist of indicators to guide the decision and no "off-on" switch on whether the yuan would make the grade at the planned review.

But he said politics would play no role in the decision, which will govern the mix of currencies that countries like Greece receive as part of disbursements from the IMF.

"They should be able to use it directly or they should be able to sell it immediately," the official said.

DIFFERENT VIEWS

Analysts interpreted the IMF delay differently, with some inferring the IMF wanted to see a more freely traded yuan before including it as a reserve currency. Others said the delay seemed technical, aimed at giving the market more time to prepare.

"The IMF article implies a large likelihood of SDR inclusion - otherwise the technical preparation would not be necessary," UBS economist Wang Tao said in a note to clients.

IMF Managing Director Christine Lagarde has said adding the yuan to the basket is a "question of when".

European members of the Group of Seven major industrialized economies - Germany, Britain, France and Italy - favor adding the yuan to the basket quickly. Japan, like the United States, is more cautious, officials have said.

The yuan has made huge strides since Beijing's last push for more formal international recognition of the currency, as global financial leaders were struggling to deal with the fallout of the sub-prime and banking crisis.

Chinese Premier Li Keqiang in March asked Lagarde to push for inclusion, saying Beijing would speed up the convertibility of the yuan on the capital account and open domestic individual cross-border investment and foreign institutional investment in China's capital market.

Earlier this year, frustrated by the refusal of the U.S. Congress to pass reforms to increase the voting rights of emerging markets in the IMF, Beijing announced it would set up its own investment bank, the Asian Infrastructure Investment Bank.

Despite pressure from Washington, which along with Tokyo, has declined to join the AIIB, most U.S. allies in Europe have signed up for the Chinese-led initiative, seen as a rival to the World Bank and Japan-based Asian Development Bank.

Siddharth Tiwari, director of the IMF's strategy, policy and review department, said in a document released with the report on Tuesday that the IMF executive board would decide on the extension proposal later this month.

(Reporting by David Chance and Krista Hughes; Additional reporting by Vidya Ranganathan in Singapore; Editing by Paul Simao and Diane Craft)