By Terry Friel

CANBERRA, Sept 25 (Reuter) - Australia on Wednesday played down a rift with China over a planned meeting between Prime Minister John Howard and exiled Tibetan leader the Dalai Lama.

Beijing on Tuesday hinted at trade retaliation after news that Howard would meet the Dalai Lama in his Sydney office on Thursday despite vigorous Chinese protests.

Meanwhile, China on Wednesday invited the German president and renewed an invitation to Foreign Minister Klaus Kinkel to visit Beijing.

It had withdrawn a previous invitation when the German lower house of parliament passed a resolution accusing China of trying to eradicate Tibet's cultural identity.

But on the eve of the Australian meeting, deputy Prime Minister Tim Fischer told state radio he was confident the row would not upset bilateral relations.

"I believe that the size, the very volume of the business relationship, the political relationship, is so large today that no one circumstance should be allowed to derail (relations)," Fischer said.

Fischer was supported by Defence Minister Ian McLachlan, who is pushing for closer military links with China. He said he did not think the row would spread to defence.

"We understood what the Chinese thought beforehand because they have made their views quite clear," McLachlan said.

"We're a democracy and we can do what we think is right. If we want to meet the Dalai Lama, well that's the way it is. Look, if we never offended any country, ever, we would not do anything," he told reporters.

Howard, accused by opponents of bungling the Dalai Lama's visit, came under increased pressure to push Beijing to begin talks on Tibet's future.

The Australia Tibet Council urged the conservative prime minister to back the Dalai Lama's campaign for autonomy for his Himalayan homeland, which China invaded in 1950.

"The Dalai Lama has done everything possible to bring about a non-violent, negotiated solution to the Tibetan situation," council president Stewart Johnson said in a statement.

"He has continually and successfully urged the Tibetans to refrain from violence in their struggle for justice.

"The Dalai Lama has maintained this principled stand in the face of enormous provocation by China and he therefore deserves the active support of all democratic governments, including the Australian government."

Neither Howard's office nor officials with the Dalai Lama could say what would be discussed at the talks, which have sparked the latest in a series of bilateral troubles.

Beijing, which regards the Dalai Lama as a pro-independence campaigner bent on splitting China, threatened possible trade reprisals on Tuesday after Howard announced his meeting.

Foreign ministry spokesman Shen Guofang said the meeting, in defiance of Chinese protests, would cast a shadow over relations between the two countries, hitting political and trade links.

Canberra has stressed the meeting is unofficial and merely a recognition of the Dalai Lama's position as a major religious leader.

"Mr Howard will be meeting the Dalai Lama only in that role and a long way from his official prime ministerial office at parliament house in Canberra," he said.

But the talks will be held at Howard's Sydney office, where he conducts most of his official business when parliament is not sitting. Parliament is in recess this week.

Relations between Beijing and Canberra have soured recently over a range of diplomatic and security issues, including a proposal to sell Australian uranium to Taiwan.