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U.S. Treasury says default risks permanent damage to reputation

By Anna Yukhananov

WASHINGTON (Reuters) - A senior U.S. Treasury official called on Congress on Tuesday to re-open the government and raise the debt ceiling or risk hurting the United States' international reputation as a safe haven and stable financial center.

"We cannot become a nation where the threat of default is repeatedly used without incurring permanent damage to America's reputation, and raising the cost of credit for businesses and families, and for our government," the official told reporters ahead of a gathering of finance officials from the Group of 20 top economies in Washington later this week.

The G20 gathering, which coincides with the fall meetings of the International Monetary Fund and World Bank, could become another pressure point for the Obama administration to urge Congress to raise the borrowing limit on the nation's debt.

A bitter fiscal stalemate has shut down the U.S. government for eight days and threatens to prevent an increase in the country's $16.7 trillion legal borrowing limit before an October 17 deadline identified by Treasury Secretary Jack Lew.

Republicans in the U.S. House of Representatives on Tuesday said they would insist on deficit-reduction talks with President Barack Obama as a condition for raising the debt limit, but some signaled they would be willing to pass short-term legislation to avert a default in exchange for immediate talks.

Obama said he would be willing to negotiate on budget issues only after Republicans agree to re-open the federal government and raise the debt limit with no conditions.

The U.S. Treasury official, speaking on condition of anonymity, said it was more difficult to promote U.S. interests abroad while the government remains closed and with the threat of default hanging over the nation.

For example, difficulty in getting any new legislation through Congress has delayed the U.S. ratification of historic changes at the IMF that would give more power to emerging markets, hurting the United States' reputation for being open to reform at international financial institution.

But the official said while U.S. fiscal issues will dominate headlines, the talks later this week among the finance ministers and central bankers of the G20 nations will also focus on fragile growth in Europe, slowing prospects in some emerging markets, Japan's plans for structural reforms, and the need for China to move towards a market-based exchange rate.

(Reporting by Anna Yukhananov; Editing by Diane Craft and Tim Dobbyn)

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