(Reuters) - President Barack Obama said the Group of 20 nations still had a lot of work to do on the world economy and had not yet achieved a framework for balanced growth.

Obama's comments, after a meeting with the president of G20 member Indonesia in Jakarta on Tuesday, came as China criticized U.S. easy money policies and warned two days before a G20 leaders summit that Washington could destabilize the global economy and inflate asset bubbles.

"We still have a lot of work to do...one of the key steps is putting in place additional tools to encourage balanced and sustainable growth," Obama told a press conference with Indonesian President Susilo Bambang Yudhoyono.

"We have not yet achieved that balanced growth," Obama said, citing that some countries were intervening in currency markets to maintain an advantage, without naming names.

The United States' ultra-loose monetary policy is sending a flood of cash looking for higher returns in emerging markets such as Indonesia, leaving them grappling with surging currencies that can hurt their exports, while the U.S. wants China to let its currency rise faster to reduce Beijing's trade advantage.

Obama said G20 progress would not happen "all at once" and the U.S. was not looking to contain China.

"We want China to succeed and prosper. It's good for the United States if China continues on the path of development that it is on," he said.

German Chancellor Angela Merkel said she hoped to avoid a confrontation at this week's Seoul summit between China and the United States over trade and currencies, and leaders are eager to show they have not lost the cooperative spirit forged during the depths of the financial crisis in 2008.

PARTNERSHIP OVER FRIED RICE

Obama and Yudhoyono inaugurated a "Comprehensive Partnership" that will include cooperation on climate, security and energy, though gave few details and did not announce specific investments other than $165 million from the U.S. for Indonesian education.

Obama said Indonesia, Southeast Asia's largest economy, was a growing market that the U.S. was focusing on as part of its drive to double exports, while Yudhoyono said he expected U.S. investment to increase significantly in sectors such as geothermal power.

Indonesia's importance as a U.S. ally is on the rise, even if the joy over Obama's election has faded since he became president almost two years ago, and support for him remains strong in a country where he spent four years of his childhood.

After he was met in Jakarta by a tropical downpour, Obama wrote in the state palace visitors book that he was "so happy" to return, and sprinkled the press conference with words of Indonesian.

Obama continued his discussions with Yudhoyono, along with wife Michelle, at a state dinner where he was to be served favorite dishes from his Indonesia childhood such as nasi goreng and bakso (fried rice and meatball soup).

Another staple Indonesian food, tempe -- a soybean cake -- relies on imports of U.S. soybeans, but the U.S. only exports about $6 billion worth of goods to Indonesia each year.

Two-way trade, from Boeing aircraft to Indonesian textiles, is likely to pick up slightly to around $20 billion this year.

DWINDLING IMPORTANCE

However, the U.S. has dwindled in importance as a source of foreign direct investment into Indonesia, with just $171.5 million or 1.6 percent of the total last year, reflecting rampant graft, poor infrastructure and concerns on nationalist policies.

"Indonesia maintains significant and far-reaching foreign investment restrictions," said the U.S. Trade Representative's 2010 National Trade Estimates Report.

While Obama is hoping for U.S. investment in sectors such as clean energy to help spur a sagging economy at home, growing direct investment is now coming more from Asia than the West.

His trip to Indonesia has been twice postponed and the White House said this stay would be cut slightly short because of atmospheric ash belched by eruptions from Mount Merapi volcano, 600 kms (375 miles) away. A government disaster expert said it posed no danger to the skies over Jakarta.

Obama will also use his visit to reach out to the Muslim world. On Wednesday he will visit the Istiqlal Mosque, one of the world's largest, and give a major speech likely to focus on Indonesia's example to the world as a pluralistic country.

Jakarta is the second stop on Obama's 10-day four-nation Asian tour. He spent three days in India, where his emphasis was on developing business links that could lead to U.S. jobs, and will fly to South Korea on Wednesday for the G20 summit and Yokohama, Japan, for an Asia-Pacific economic meeting.

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