OBAMA TOUTS INVESTMENT PLAN ON MIDDLE AMERICA TRIP

Manitowoc, US, January 27 (Reuters)- President Barack Obama pressed his case on Wednesday for investment to grow the U.S. economy out of its budget woes, a job made tougher by a forecast that the deficit will surge 40 percent this year.

The Congressional Budget Office forecast the U.S. deficit would hit $1.48 trillion this year and the Federal Reserve was downbeat on the prospects for job creation.

Those were sobering reminders the day after Obama's State of the Union address, in which he struck a conciliatory tone toward newly empowered congressional Republicans and advocated investment in some areas and cuts in others to make the U.S. economy more competitive.

Obama's retooled, business-friendly approach is aimed at moving to the political center, which is key to his 2012 re-election chances.

Stock and oil prices gained on optimism over Obama's offer to cut corporate tax and curb spending.

On a trip to Wisconsin, a political battleground state he won in the 2008 election, Obama pushed his message of innovation and job creation during a visit to renewable energy firm Orion Energy Systems in Manitowoc.

To hold its own against rising powers like China and India, the United States should be "winning the future" by investing in high technology, Obama said.

"China's making these investments and they have already captured a big chunk of the solar market, partly because we fell down on the job. We weren't moving as fast as we should have. Those are jobs that could be created right here that are getting shipped overseas," Obama told workers.

Republicans, who routed Obama's Democrats in November congressional elections, said he did not go far enough in his speech to embrace fiscal restraint. Obama will have a fight on his hands over his budget plan to be presented in February.

In an effort to show fiscal discipline, Obama proposed a five-year freeze in some domestic spending, which he said would cut $400 billion from budget deficits over a decade.

'Wasteful, excessive spending'.

He alluded again on Wednesday to the need to cut spending, saying progress meant "doing what we try to do in our own lives by taking responsibility for our deficits by cutting wasteful, excessive spending wherever we find it”.

Republicans seeking $100 billion in deficit cuts this year to try to move the United States to a sounder fiscal footing, called Obama's planned spending freeze too little, too late.

"There's got to be some kind of absolute iron-clad path to getting (spending) down," Republican Senator John McCain said on ABC's "Good Morning America" program.

Obama walked a fine line in Tuesday's speech.

"Basically, what I heard were a lot of ideas to raise spending followed by ideas to cut spending. You can't have it both ways," said Bryan Hofferica, 32, who works at a brokerage house in Chicago.

Obama offered some proposals that might appeal to the Republicans, who control the House of Representatives. These include a corporate tax cut, while closing existing loopholes, and reform of the tax code. He also threatened to veto lawmakers' pet spending projects.

Leaders of lobby groups representing business and labor -the U.S. Chamber of Commerce and the AFL-CIO- issued a rare joint statement applauding Obama's proposals for projects that would create jobs.

"Whether it is building roads, bridges, high-speed broadband, energy systems and schools, these projects not only create jobs and demand for businesses, they are an investment in building the modern infrastructure our country needs to compete in a global economy," the statement said.

"We hope that Democrats and Republicans in Congress will also join together to build America's infrastructure”.

Republicans have threatened to obstruct efforts in Congress to raise the national debt ceiling by the time it hits a statutory limit of $14.3 trillion by March 31. The country could default on its debt, causing financial havoc, if the limit is not increased.

Republican insistence on maintaining tax cuts even for the richest Americans is complicating Obama's attempt to close the fiscal gap.

Obama sought in his speech to reassure Americans weary of stubbornly high 9.4 percent unemployment, fearful of rising debt and dismayed at vicious political rhetoric.

The challenge will be how to finance investment for growth while addressing a dire fiscal outlook. On this Obama left details until his budget, due next month.

The new Republican chairman of the House Armed Services Committee criticized the Obama administration's plan to strip tens of billions of dollars from the Pentagon's budget and suggested that national security considerations may have been sacrificed.

At the World Economic Forum in Davos, business leaders gave a mixed reaction to Obama's proposed austerity steps, with some questioning whether they go far enough.

"American corporates and Western corporates are really uncertain, and I don't think last night's speech really gets us further in terms of removing that uncertainty," Martin Sorrell, CEO of advertising giant WPP, told a panel.

<