China on Tuesday pledged to make it easier for U.S. companies to win Chinese government contracts, addressing a long-standing complaint of foreign corporations seeking a piece of the fast-growing market.

The pledge was made in two days of talks between the world's two biggest economies which ended with U.S. Treasury Secretary Timothy Geithner hailing progress in the often tense relationship between Washington and Beijing.

We are seeing very promising shifts in the direction of Chinese economic policy, Geithner said.

U.S. and European companies have complained they were being unfairly shut out of competing for Chinese government business by a policy that gave preferential access to domestic firms.

In top-level talks with U.S. officials, China amplified a pledge made in January on its indigenous innovation policies, stating explicitly that this pledge extended to purchases by local governments -- not only the central government.

Geithner said China has taken key steps to level the playing field for U.S. firms in the Chinese market, including delinking government procurement from so-called indigenous technology requirements.

Those requirements have been seen by U.S. companies as a tool to support Beijing's effort to spur technological innovation by Chinese firms.

China also agreed to let U.S. banks sell mutual funds in the country, a U.S. Treasury Department official said, a potentially big step forward for the U.S. financial sector.

Beijing previously said it would consider foreign companies with operations in China as eligible for government contracts but many U.S. firms saw that as a bid to make them turn over technology in order to compete in the country's vast public works market.

The clarification was first made by Zhang Xiaoqing, the director of China's Reform and Development Commission in comments to reporters hours before the end of the annual U.S.-China Strategic and Economic Dialogue in Washington.

It amplified on a key promise that Chinese President Hu Jintao made during a January visit to Washington.

The offer was the most substantive outcome so far of the talks which close on Tuesday with statements and a news conference by Geithner and Secretary of State Hillary Clinton.

LOOKING FOR BUSINESS

The U.S. business community welcomed the commitment.

A public acknowledgment that this applies to local governments is great, said Erin Ennis, vice-president of the U.S.-China Business Council. What really is going to be telling is if this shows up in whatever the final documents are that the U.S. and the Chinese put out.

Ennis said products on the central government's procurement catalog that had faced indigenous innovation restrictions included computer devices, phones and other communication products, copiers, fax machines, laser printers, digital cameras, software, and clean energy equipment.

Top U.S. and Chinese executives had a chance to talk over business possibilities at a lunch with the U.S. and Chinese delegation leaders at Blair House, the government guest residence across the street from the White House.

The U.S. side included Citigroup chief Vikram Pandit and Edmund Kelly of Liberty Mutual, which is the fifth biggest insurer operating in China. China's state-owned CITIC Group was represented by its chief Chang Zhenming. Zhao Xiaogang of state-owned China South Locomotive was also present.

Agreements were signed on a framework for cooperation on trade and investment and at the State Department for sharing knowledge on technology to reduce air pollution and protect water resources. No details were provided.

SELLING AUTOMOBILE INSURANCE

Chinese officials also indicated they would look favorably on letting U.S. and other foreign insurance companies sell auto insurance in what is expected to be the world's largest car market, a Treasury official said.

The official said there had been detailed talks on China's yuan currency and a recognition by China that a stronger yuan was needed to tamp down surging inflation.

The talks are designed to keep economic and political irritants from becoming disputes and cover relations between the two in some of the world's most hottest spots.

In a news conference near the end of the talks, Chinese Vice Foreign Minister Zhang Zhijun said talks had covered North Korea, Iran and other places where the U.S. and China sometimes have differences but said there were no breakthroughs.

Still, Zhang indicated they had agreed to try to keep tensions in check, including through launching a new consultation mechanism on Asia-Pacific affairs.

If China and the United States can't cooperate in the Asia-Pacific, then it's futile to discuss global cooperation, he said. I'm confident that the launch of this mechanism will promote sound interactions between our two countries in the Asia-Pacific region.

Zhang said human rights issues were raised throughout the dialogue. But he gave no public sign that China wants to make a feud of the issue, and repeated Beijing's position that other countries should not lecture it about human rights.

It's China's 1.3 billion people who are most qualified to speak on China's human rights situation, he added. No country, including the United States, is perfect and without blemish when it comes to human rights.

(Additional reporting by Chris Buckley; writing by Glenn Somerville; Editing by Tim Ahmann and Kenneth Barry)

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