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By Wa Lone and Yimou Lee

YANGON (Reuters) - Myanmar's government praised China on Wednesday for suspending a Chinese bank account used by ethnic rebels fighting Myanmar troops, in a move to prevent potential damage to diplomatic ties.

Reuters has revealed that an ethnic rebel armed group fighting Myanmar forces near the Chinese border had been openly soliciting funds via China's giant state-owned lender Agricultural Bank Of China (AgBank).

Myanmar's peace process - started under the previous semi-civilian administration - has lost momentum after Nobel Peace Prize winner Aung San Suu Kyi came to power in 2016, with some of the militias accusing her of a one-sided approach and refusing to join a major peace conference.

Relations with China have been strained by the ethnic conflicts spilling over the border, and some observers say Beijing uses ethnically Chinese insurgent groups as a means of leverage over Myanmar.

The decision to suspend AgBank was welcomed by Suu Kyi's government.

"We appreciated this action. Stability and peace in border area is common interest for both sides," Myanmar's presidential spokesman, Zaw Htay, told Reuters. "(It was a) very positive move from China."

Zaw Htay shared the Reuters story on his widely-followed Facebook page and Twitter accounts, tagging key negotiators in Myanmar's peace process.

Over nearly two years, the Myanmar National Democratic Alliance Army (MNDAA) raised more than $500,000, deposited directly in an AgBank account or sent it via two mobile payment services - Tencent Holdings' WeChat Pay and Alipay, part of Ant Financial, which is affiliated with U.S.-listed Chinese e-commerce giant Alibaba.

The account was suspended over the weekend, shortly after Reuters had sent AgBank a list of questions regarding the transactions, which compliance experts said could point to a weakness in controls aimed at stopping the global financial system being used to fund terrorism or facilitate crime.

There is no evidence that Agbank, or other financial entities that handled transactions for the MNDAA, have broken Chinese law.

Earlier this month, insurgents from the predominantly ethnic Chinese MNDAA attacked government troops in northeastern Myanmar. Some 20,000 people fled across the border to China to escape the fighting, prompting Beijing to call for a ceasefire.

In a rare move, Myanmar army chief Senior General Min Aung Hlaing disclosed on his official Facebook page that he had summoned the Chinese ambassador and defence attaché on Tuesday to discuss the conflict, and how to cooperate to bring about peace and stability.

(Editing by Simon Cameron-Moore)

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