By Stanley White and Leika Kihara
TOKYO (Reuters) - Japan and China are in talks to resume a bilateral currency swap arrangement between their central banks, sized at about 3 trillion yen (21.29 billion pounds), Kyodo news agency reported on Tuesday.
The resumption of the swap agreement represents a thaw in relations between the world's second- and third-largest economies, which soured in recent years due to territorial disputes and tensions over Japan's wartime history.
Previously, Japan and China had a smaller currency swap in place, but this was allowed to expire in September 2013 amid a low point in Sino-Japanese relations.
Japan's Kyodo said the two countries are expected to reach an agreement on the currency swap at a bilateral financial dialogue to be held in Beijing this month.
Chinese Premier Li Keqiang flagged the proposed resumption of the swap agreement with Japan in May.
Tokyo is trying to arrange a summit between Prime Minister Shinzo Abe and Chinese President Xi Jinping in October and wants to use the renewed swap agreement as a symbol of cooperation, Kyodo said, without citing sources.
Officials at Japan's finance ministry, which is responsible for currency swaps, were not immediately available for comment.
The People's Bank of China did not immediately respond to a faxed request for comment.
In the case of financial turmoil, the swap could act as a safety net by providing yuan to Japanese banks operating in China and yen to Chinese businesses.
The bilateral currency swap was originally launched in March 2002 as part of multilateral currency swap lines known as the Chiang Mai Initiative, which was established in response to the Asian financial crisis in the late 1990s.
($1 = 110.4900 yen)
(Additional reporting by Beijing Newsroom; Editing by Sam Holmes)
