President Barack Obama's top economic adviser said on Friday that China's massive holdings of U.S. government bonds are a source of mutual benefit to both countries.

We have a substantial appetite to borrow and they have a substantial appetite to hold reserves and lend to us, National Economic Council Director Lawrence Summers told a conference at Georgetown University.

That is a relationship that has been very substantial in our mutual interest, and it has very much been a source of support for both economies, he said in a response to a question from the audience after giving a speech.

The U.S. will host China and other members of the G20 at a leaders summit in Pittsburgh next week.

Defending Obama's decision to borrow heavily to finance a $787 billion fiscal stimulus program to lift the economy out of recession, Summers said big foreign holdings of U.S. Treasuries made it important to pay down the debt as growth returns.

It will...be necessary to bring down the budget deficit in a substantial way, to contain government borrowing and to limit the size of the federal government's role in the debt markets.

It will be important in terms of our financial relations with China, but equally our financial relations with the world in both the public and private sector, he said.

(Reporting by Alister Bull; Editing by Diane Craft)

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