WASHINGTON (Reuters) - China has agreed to eliminate a dozen industrial subsidy programmes the United States challenged as illegal this year under World Trade Organisation rules, the top US trade official said yesterday.

"This outcome represents a victory for US manufacturers and their workers," US Trade Representative Susan Schwab told reporters. "The agreement also demonstrates that two great trading nations can work together to settle disputes to their mutual benefit."

China's decision will eliminate subsidies across a spectrum of Chinese industrial sectors, including steel, wood products, information technology, Schwab said.

The announcement came just a few weeks before the United States and China are scheduled to hold high-level trade and economic talks in Beijing.

Schwab said the timing was not influenced by the upcoming meeting and added she did not expect a breakthrough in three other pending WTO complaints against China.

Most of the subsidy programmes challenged by the United States are designed to help boost China's exports. The rest discourage imports by encouraging companies in China to buy local goods.

The US trade deficit with China hit a record $234 billion in 2006 and is expected to surpass that this year, fuelling complaints in Congress about China's trade practices.

Under an agreement signed yesterday in Geneva, China will eliminate the 12 subsidy programmes by January 1, although one regulation "for technical reasons won't be taken off the books" until January 2009, Schwab said.

The United States will suspend its WTO case for now and formally withdraw it once the subsidy programmes are ended.

US officials were unable to say how much the subsidy programmes have boosted Chinese exports and discouraged imports.

"We do know the benefits were likely to be very substantial because these subsidies are so pervasive," Schwab said.

Many US lawmakers and exporters believe China's biggest export subsidy stems from its currency, which they believe is undervalued against the dollar by as much as 40 percent.

The Bush administration, despite pressure from Congress, has refused to challenge China's exchange rate regime at the WTO and Schwab indicated no change in that policy yesterday.

With the signing of the agreement in Geneva, the United States does not currently see any other WTO-prohibited subsidies in China "that we would need to go after," Schwab said.

The United States began the case in February by targeting six Chinese export subsidy programmes and three other programmes that US officials said discriminated against imports by subsidising Chinese company purchases of local goods.

China said in March it was eliminating one of the export subsidy programmes, but later approved a new tax law that created four more prohibited subsidy programmes, Schwab said.

The United States formally requested a WTO dispute settlement panel in July to hear its complaint. Mexico had joined the United States in bringing the case. The United States has three other WTO cases pending against China.

Those target Beijing's "discriminatory" treatment of foreign auto parts, its restrictions on the importation and distribution of US music, books, films, DVDs and journals and alleged deficiencies in China's legal regime for protecting and enforcing copyrights and trademarks on a wide range of goods.