The South Korean economy is also set to expand at a brisk pace, but Japan's economy will slow significantly, the OECD said in its six-month outlook for leading economies.

The OECD's chief economist Pier Carlo Padoan told a press conference on the report that emerging countries were suffering from the weakness of the yuan.

"This might, paradoxically, lead to a disintegration in Asia," he said.

"China has been a driver of growth in the region, but if exchange rates diverge too much I see a threat not just to global trade, but especially to Asian trade."

With a realignment of global trade balances and currencies top on the agenda of world leaders, the OECD advised China that an appreciation of the yuan would also help stabilise its economy.

"The stability of the domestic economy would be enhanced if exchange rate policy were more oriented to allowing an appreciation against a basket of currencies," the Organisation for Economic Cooperation and Development said.

The United States and others have contended that China has been kept its currency artificially low against the dollar to boost exports, a charge that Beijing denies.

China has recently shown more concern about inflation, which a feared flood of US stimulus funds to emerging markets could exacerbate, but the OECD forecast that Chinese consumer price inflation should stabilise at about 3.0 percent.

Despite the removal of stimulus measures, the Chinese economy is forecast to show growth of 10.7 percent this year and then slowing to 9.7 percent in the next two years as domestic demand increasingly fuels expansion.

In Asia's other major emerging economy, India, growth should rebound to 9.1 percent this year, slow to 8.2 percent next year and then climb to 8.5 percent in 2012.

"...activity has eased form its unusually strong pace and there are now signs that the economy is shifting from the recovery phase to one of sustained high growth," the report said.

Although the pace of the recovery in South Korea, a member of the OECD club of industrialised nations, has eased slightly in the second half of this year the country is still in line to post 6.2-percent growth this year.

Encouraging Seoul to raise interest rates to contain inflationary pressures and undertake structural reforms to underpin growth, the OECD forecast that South Korea's economy will expand by 4.3 percent next year, and by 4.8 percent in 2012.

Japan had now ended its fiscal stimulus measures, but the effect of these should help its economy to grow by 3.7 percent this year. The pace of expansion should slow to 1.7 percent next year and 1.3 percent in 2012.

The OECD said that since it expected Japanese public debt to exceed 200 percent of output next year, the government should keep tight controls on spending.

"At a minimum, it is necessary to avoid additional fiscal stimulus and contain government spending in 2011-2012..." the OECD said.

Fuelled by a mining boom, Australia's economic growth should continue to pick up pace over the next two years, expanding 3.3 percent this year, then 3.6 percent in 2011 and 4.0 percent in 2012.

China and India are not members of the OECD, a policy and research body for the governments of 33 leading economies in the world, but it habitually reviews the outlook for significant non-OECD areas such as the increasingly important top emerging economies.

-- Dow Jones Newswires contributed to this report --

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