By Andrew Quinn and Farah Master

HONG KONG (Reuters) - Secretary of State Hillary Clinton sought to reassure Asian investors over U.S. debt worries on Monday, saying she was confident President Barack Obama would ultimately reach a deal with congressional leaders to prevent a catastrophic default. "I'm confident that Congress will do the right thing and secure a deal on the debt ceiling, and work with President Obama to take the steps necessary to improve our long-term fiscal outlook," Clinton said in a speech in Hong Kong. Clinton's speech to business leaders was overshadowed by Washington's failure thus far to craft a deal to extend the U.S. government's borrowing authority, but she said the political wrangling was both natural and healthy. "Let me assure you we understand the stakes. We know how important this is for us and how important it is for you."

A sharply divided U.S. Congress pursued rival budget plans on Monday that appeared unlikely to win broad support, pushing the United States closer to a ratings downgrade and debt default that could trigger global economic calamity.

Fred Neumann, co-head of Asian economics research at HSBC in Hong Kong, said U.S. policymakers know Asian investors, who have large exposures to U.S. Treasuries, are desperate for reassurance that the United States will not default on its debt.

"The U.S. in particular as well as Western Europe will need to rely on much more forceful Asian demand in the next few years, to be able to pay off their debt and make sure that the default doesn't occur," he said.

FREE AND FAIR Clinton laid out the U.S. vision for the future of world trade, one she said must be based on "open, free, transparent and fair" principles that apply to all. "We in the United States are in the middle of a necessary transition. We must save more and spend less...we must borrow less as well," Clinton said. "Our partners must meet this change with changes of their own." The United States is committed to expanding its economic outreach -- and to push for a "level playing field" to counter what Washington believes are unfair advantages that have helped China and some other emerging economies grow so fast, she added.

Clinton urged Asian governments to do more to boost local consumer demand, and to take a new look at policies ranging from intellectual property rights to support for state enterprises at the expense of private entrepreneurs.

Clinton was relatively soft on traditional bashing points, usually directed at China, highlighting that both Washington and Beijing are trying to resolve their differences ahead of a series of major international meetings including the East Asia Summit in November.

While she did not directly target China, Clinton's message on Monday was clearly intended for Beijing, which U.S. officials have accused of using regulatory measures and an artificially low exchange rate to rack up some $3.2 trillion in foreign exchange reserves. U.S. officials said China was clearly concerned about the U.S. debt impasse and had repeatedly urged Washington to get its economic house in order.

"They've basically said that they've made a substantial investment in the United States and that they expect -- not hope, expect -- the United States will abide by its various financial and international commitments. Full stop," one U.S. official said. Clinton's visit, the first by a U.S. Secretary of State to Hong Kong since Beijing resumed control over the city from Britain in 1997, comes at the end of a round-the-world trip during which China was often at the top of the agenda.

"We are a resident power in Asia -- not only a diplomatic or military power, but a resident economic power. And we are here to stay," she said.

(Editing by Ken Wills and Yoko Nishikawa)