WASHINGTON (Reuters) - The US must combat China's trade-distorting industrial and currency policies with US trade laws and by using the World Trade Organisation, a congressional advisory body said on yesterday.

China's trade policies that are aimed at piling up big surpluses contributed to the imbalances behind the global financial crisis that started in the US in 2008, the US-China Economic and Security Review Commission said. "If China continues to pursue huge trade and investment surpluses and to accumulate vast financial claims, it will hinder the necessary global economic adjustment, create excess manufacturing capacity and lay the groundwork for the next financial crisis," the bipartisan commission said in its annual report to the US Congress.

The fiscal stimulus plan that China has used to combat the crisis, which won praise in some circles, mainly supports more exports and "will only exacerbate overcapacity, aggravating the overall problem," said the 367-page report.