* Germany's Merkel floats idea to avoid trade battles

* Expectations for breakthrough at summit in Canada low

* Trump says Russia should be attending G7 meetings (Adds development on trade dialogue talks)

By Jean-Baptiste Vey and Roberta Rampton

LA MALBAIE, Quebec, June 8 (Reuters) - The United States and European Union will establish a dialogue on trade within the next two weeks, a French official said on Friday, at the end of a fractious session that had threatened to rupture the Group of Seven rich nations alliance.

U.S. trading partners have been furious over Trump's decision last week to impose import tariffs on steel and aluminum imports from Canada, the European Union and Mexico as part of his "America First" agenda. Some countries have retaliated with their own levies on U.S. imports.

U.S. President Donald Trump had countered a slew of data on imports and exports from U.S. allies on Friday with his own different numbers, holding firm to his position that the United States was at a disadvantage on international trade, an official who followed the talks said.

But, after a meeting with French President Emmanuel Macron, Trump struck a more affable tone and said the French leader was helping work out trade issues.

"Something's going to happen. I think it will be very positive," Trump said, without giving details.

Macron said it was possible to make progress on the trade issues that have split the U.S. and its allies after meeting with Trump.

"I think on trade there is path, but there is a way to progress all together," he told reporters.

(Reporting by Jan Strupczewski and Andreas Rinke; additional reporting by Susan Heavey and Doina Chiacu in Washington and Jean-Baptiste Vey, Giselda Vagnoni, William James, Roberta Rampton, Jan Strupczewski, Will James, Andrea Hopkins and David Ljunggren in La Malbaie, Quebec; Writing by Paul Simao and Amran Abocar; Editing by Susan Thomas and Grant McCool)