UPDATE 3-Obama nominates Lew to succeed Geithner at Treasury

* Obama says Lew "a low-key guy" and "master of policy"

* Lew, 57, appears likely to win Senate confirmation

* He faces Republican questions about spending reforms

* Chamber of Commerce chief says Lew will do "just fine"

WASHINGTON, Jan 10 (Reuters) - President Barack Obama on

Thursday nominated his chief of staff, Jack Lew, as the next

Treasury secretary, praising him as a expert on the pressing

national issues of U.S. government spending cuts and deficit

reduction.

If confirmed by the Senate as expected, Lew would succeed

Timothy Geithner and take the lead on difficult negotiations

with Congress on how to cut the nation's massive debt and rein

in spending - a central challenge for Obama's second term.

Lew, a 57-year-old New Yorker who has previously served as

White House budget chief, is likely to face tough questions from

Republicans in his Senate Finance Committee confirmation hearing

after the bruising year-end battle over tax increases on the

wealthy.

Obama described Lew as "a low-key guy who prefers to

surround himself with policy experts rather than television

cameras," and said the son of a Polish immigrant had a deep

belief in public service.

"Over the years, he's built a reputation as a master of

policy who can work with members of both parties and forge

principled compromises," Obama said.

Since the Treasury secretary signs U.S. currency, Obama

teased Lew for his unusually loopy signature and joked that the

nominee had promised "to make at least one letter legible in

order not to debase our currency."

Denis McDonough, Obama's deputy national security adviser,

is considered the leading candidate to replace Lew as White

House chief of staff.

Lew has experience in tough financial negotiations, having

led talks with Congress in 2011 that brought a deal to avert a

U.S. debt default. A similar battle looms now.

As budget director for former President Bill Clinton, he

presided over a string of budget surpluses between 1998 and

2000. "For all the talk out there about deficit reduction,

making sure our books are balanced, this is the guy who did it,

three times," Obama said.

NEXT STEP: THE SENATE

Lew's nomination now will be vetted by the Senate, where

Senate Finance Chairman Max Baucus, a Democrat, promised a

"speedy but thorough" hearing. No date has yet been set.

Senator Orrin Hatch, the top Republican on the panel, said

he plans to ask Lew about the administration's strategy for

spending cuts, something Republicans have insisted needs to be

made clear before they will agree to raise the debt ceiling.

Obama has vowed not to negotiate over the debt ceiling,

which could be reached as early as mid-February.

"It's imperative that Mr. Lew outline the administration's

plans on tackling our unsustainable debt, what areas of federal

spending should be cut, and what kind of reforms - from our tax

code to our entitlement programs - are needed to get our fiscal

house in order," Hatch said in a statement.

Senator Bernie Sanders of Vermont, an independent who

caucuses with Democrats, said he would not vote for Lew because

he did not think he would "stand up" to Wall Street and

lobbyists. Sanders said Lew likely would win enough votes for

confirmation.

Republican Senator Jeff Sessions of Alabama said he thinks

Lew "needs to be held accountable" for Obama's economic

policies.

"We need somebody with international credibility, a

heavyweight financial person to help get this country's growth

path moving," Sessions told Reuters.

LEW A 'TOUGH DUDE'

At the White House announcement, Geithner earned sustained

applause for his work helping the administration navigate the

financial crisis that put banks at risk and cratered the housing

market early in Obama's first term.

At least two former White House budget directors were in the

audience for the Lew announcement, including Alice Rivlin, who

headed the budget office in the early 1990s, later became a vice

chair of the Federal Reserve, and who remains a fixture in

fiscal policy debate.

Also attending was Franklin Raines, who led the budget

office from 1996 to 1998. He was ousted as chief executive of

mortgage finance giant Fannie Mae after an accounting scandal.

Some analysts have questioned whether Lew has enough

experience working on international financial issues and on

banking regulations.

But the White House has highlighted international experience

Lew gained during a stint at the State Department, and his

"strong relationships in the business community," having worked

as a managing director at Citigroup.

Thomas Donohue, president of the U.S. Chamber of Commerce,

said that all Treasury secretaries have to "compensate for the

areas where they don't have experience" with strong deputies.

Donohue, whose business lobby has often butted heads with

the Obama administration, told reporters he thought Lew was a

"skilled operative" and a "tough dude."

"I think Jack Lew will do fine," Donohue said.

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