U.S. and European companies have complained they were being unfairly shut out of competing for Chinese government business by a policy that gave preferential access to domestic firms.

In top level talks with U.S. officials, China amplified a pledge made in January on its "indigenous innovation" policies, stating explicitly that this pledge extended to purchases by local governments -- not only the central government.

A senior U.S. official told reporters an agreement had been reached to make clear that Chinese government buying would not be used as a tool to support Beijing's effort to spur technological innovation by Chinese firms.

Beijing had previously said it would consider foreign companies with operations in China as eligible for government contracts, but many U.S. firms saw that as a bid to make them turn over technology in order to compete in the country's vast public works market.

The clarification was made by Zhang Xiaoqing, the director of China's Reform and Development Commission in comments to reporters hours before the end of the annual U.S.-China Strategic and Economic Dialogue in Washington.

It amplified on a key promise that Chinese President Hu Jintao made during a January visit to Washington.

The offer was the most substantive outcome so far of the Strategic & Economic Dialogue talks which close on Tuesday with statements and a news conference by U.S. delegation leaders Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton.

The U.S. business community welcomed the commitment.

"A public acknowledgment that this applies to local governments is great," said Erin Ennis, vice-president of the U.S.-China Business Council. "What really is going to be telling is if this shows up in whatever the final documents are that the U.S. and the Chinese put out."

Ennis said products on the central government's procurement catalog that had faced indigenous innovation restrictions included computer devices, phones and other communication products, copiers, fax machines, laser printers, digital cameras, software, and clean energy equipment.

U.S. MUTUAL FUNDS IN CHINA

Agreements were signed at the U.S. Treasury on a framework for cooperation on trade and investment and at the State Department for sharing knowledge on technology to reduce air pollution and protect water resources. No details were provided.

The senior U.S. official said there was also agreement on other areas including permitting mutual fund companies in the United States and elsewhere to sell mutual funds in China.

The official said there had been detailed talks on China's yuan currency and a recognition by China that a stronger yuan was needed to tamp down surging inflation.

The talks are designed to keep economic and political irritants from bubbling into hot disputes.

While analysts said they did not expect big breakthroughs, they were confident that participants would offer a menu of areas in which they will continue to cooperation.

The Washington-based Center for Strategic and International Studies said a document listing more than 50 new and ongoing areas of cooperation would be issued when the meeting ends.

Charles Freeman and Bonnie Glaser of the Washington think tank said the sessions are important as an opportunity for the countries to air differences, whether or not big strides are taken.

That significant "deliverables" from the U.S.-Chinese dialogue "are hard to come by should not surprise anyone, however, and does not undermine the importance of the meeting," they wrote.

The talks ranged from world hot spots like Afghanistan and North Korea, where China was expected to be urged to help exert influence, to the perennial one of U.S. urging Beijing to let its yuan currency rise more rapidly.