Paulson faced skepticism at a Senate Banking Committee hearing, where he testified about the Treasury's decision in December not to label China a currency manipulator and insisted a course has been set for progress on more yuan flexibility.

"Increased flexibility in the short run is absolutely necessary, but it is not sufficient," Paulson said, "My goal is to make significant progress toward a fully market-determined, floating Chinese currency."

Democratic and Republican senators denounced the loss of American jobs as U.S. trade deficits with China steadily mount under conditions that many see as unfair competition.

The lawmakers "go home every weekend and we meet our constituents and they are livid," said Connecticut Democrat Chris Dodd, who is committee chairman. "Congress isn't going to wait for us to get some kind of vague definition for how this is kind of progressing when they watch 3 million manufacturing jobs leave this country."

Paulson acknowledged that many see China's yuan as undervalued and said he was committed to push for change for the remaining two years that he will lead the Treasury.

"China does not yet have the currency policy that we want it to have and that it needs," Paulson conceded. "We are actively pressing the Chinese to introduce greater currency flexibility and undertake wider market reforms."

He said a "strategic economic dialogue" between China and the United States that was announced last year should produce real results.

"I believe we have a plan in place that gives us the best chance of making progress," Paulson said, "I think we are going to get progress."

Paulson was asked about a speech that Federal Reserve Chairman Ben Bernanke gave in Beijing last December when he accompanied the Treasury chief for talks with Chinese officials. In a text issued at the time, Bernanke said the Chinese currency's value represented a subsidy but did not use the term when he delivered the remarks.

Paulson said no Treasury official pushed Bernanke to drop the reference to a subsidy -- a term that many lawmakers and U.S. trade groups use when they discuss the yuan's value.

Paulson said he was sympathetic toward Americans who lose their jobs and hoped the growing volume of trade with China produced more benefits for Americans. He said a "crossover" point has been reached where U.S. exports to China are growing rapidly and creating U.S. jobs.

The U.S. Treasury chief stepped lightly around a question whether he thought Japan's yen was undervalued -- a particularly sensitive point with Europe -- saying only that he was watching the yen's value "very, very carefully" but felt its value was being determined by economic fundamentals.

Paulson appeared to stake out a position at odds with European counterparts from the Group of Seven -- the United States, Britain, Canada, France, Germany, Italy and Japan -- who will meet in Essen, Germany, Feb. 9-10. He said Japan was just emerging from deflation and was experiencing weak growth "and so interest rates are very low."