June 2 (Bloomberg) -- Treasury Secretary Timothy Geithner said China, the biggest holder of U.S. Treasuries, has expressed confidence in the U.S. economy and the Obama administration’s actions to fight the recession.

Chinese officials expressed “justifiable confidence in the strength and resilience and dynamism of the American economy,” Geithner said in an interview with state media in Beijing today. He said there will be enough demand for record sales of U.S. debt.

Geithner’s two-day visit to strengthen ties ended with the U.S. announcing that the nations will hold strategic and economic talks in Washington in the week starting July 27. Premier Wen Jiabao called in March for the U.S. “to guarantee the safety of China’s assets” and central bank Governor Zhou Xiaochuan has proposed a new global currency to reduce reliance on the dollar.

Yu Yongding, a former central bank adviser who acted as the interviewer for the China Daily newspaper, told Geithner: “I worry about details. We will be watching you very carefully.”

Treasury yields increased by the most in eight months yesterday as investors bet that the U.S. employment report on June 5 will show the economy has yet to pull out of the recession. They fell today after Geithner’s comments. China held $768 billion of the securities at the end of the first quarter.

Feeling the Pain

“China will be shooting themselves in the foot if they push this issue too hard,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “If they are too alarmist and contribute substantially to a dollar and Treasuries sell off, they are going to feel more pain than just about anybody in the world.”

Geithner cited a “very sophisticated understanding” in China of why the U.S. is running budget deficits in the short term while also pledging to rein in borrowing over the medium term. He reiterated the U.S. commitment to cut spending once stability returns.

“You have established good working relationships with your Chinese colleagues and you are committed to increasing China-U.S. cooperation in tackling the international financial crisis,” President Hu Jintao said at a meeting at the Great Hall of the People. “I appreciate that.”

The U.S. deficit is projected to reach $1.75 trillion in the year ending Sept. 30 from last year’s $455 billion shortfall, according to the Congressional Budget Office. The Obama administration aims to narrow the gap to about 3 percent of gross domestic product from a projected 12.9 percent this year.

‘Do Everything Necessary’

Geithner pledged that the U.S. would “do everything that is necessary” to sustain confidence in the nation’s financial markets, citing government and central bank commitments to low inflation and a strong dollar and “the deepest, most liquid Treasury markets in the world.”

When asked by Yu whether there will be sufficient demand for U.S. debt this year, Geithner responded: “I believe there will be.”

In a separate interview with foreign media this morning, Geithner said that Chinese officials led by Vice Premier Wang Qishan had focused on the economic recoveries of the U.S., China and the world. They hadn’t expressed concern about the safety of Treasuries or the U.S.’s ability to unwind financial rescue programs and return to living within its means, he said.

He said the Chinese “expect the dollar to be the principal reserve currency for a long period of time -- as do we.”

Currency Showdown

Throughout the talks, Geithner avoided a showdown over the yuan, declining to repeat his comment in January that the nation was “manipulating” the currency and instead welcoming a Chinese commitment to more flexibility over time. He highlighted energy as a key topic, saying that it would be a “central part” of the nations’ strategic dialogue.

Geithner covered topics including U.S. monetary policy, the auto industry, and signs of a global recovery, in an interview today with broadcaster CNBC.

He said that there was “no risk” of the U.S. monetizing its debt, a response to a question about whether the government would seek to finance the national debt by expanding the money supply and thus trigger a rise in inflation.

He saw “early signs of stabilization” in the world economy and a “somewhat diminished fear of deflation.”

General Motors

The Obama administration is optimistic that General Motors Corp. will emerge from bankruptcy “reasonably quickly,” although the process will take longer than that for Chrysler LLC, Geithner said. “I think we have a reasonable prospect that the taxpayer’s going to see a reasonable return on these investments,” he added.

The Treasury still plans to work with regulators to set up programs to help lenders sell assets such as mortgage-backed securities, he said, while acknowledging that there may be “less interest” from buyers and sellers after market confidence improved.

Geithner earlier told China Daily that he backed the leadership of Federal Reserve Chairman Ben S. Bernanke.

Bernanke “has done an enormously impressive job in the worst financial crisis in decades, working with central banks not just in China but around the world, making sure that markets have liquidity, that monetary policy is appropriately expansive,” Geithner said. He was “completely confident” that Bernanke could keep inflation low and stable.

To contact the reporter on this story: Rebecca Christie in Beijing at Rchristie4@bloomberg.net

Last Updated: June 2, 2009 05:30 EDT