* Panel would make recommendations to curb deficit, debt
* Obama wants Democrats and Republicans to serve on panel
* Republicans may balk over recommending tax hikes (Recasts, adds details, Gibbs comment)
By Alister Bull
WASHINGTON, Feb 5 (Reuters) - President Barack Obama will take a step toward toughening U.S. fiscal discipline next week by creating a panel to help tackle the country's record deficit and mounting debt, the White House said on Friday.
White House spokesman Robert Gibbs said Obama will issue an executive order to set up a fiscal commission that will study options on spending and taxes after the U.S. Congress failed to create a congressional deficit panel of its own.
The president wants Republicans as well as members of his own Democratic Party to serve on the panel, and hopes that they can forge a bipartisan approach to the deficit.
A presidential commission would produce recommendations but would lack the power to bind lawmakers.
Republicans are expected to be wary of taking part for fear of giving the White House political cover to raise taxes.
Obama will also sign a bill on Tuesday or Wednesday raising government borrowing authority to $14.3 trillion and reinstalling pay-as-you-go rules that require Congress to offset spending with cuts elsewhere, Gibbs said.
The House passed the bill earlier this week, giving it final congressional approval and sending it to the White House.
"This is an important step forward in getting us back on a path of fiscal responsibility," Gibbs said.
The White House forecasts a record $1.56 trillion deficit in the fiscal year that ends on Sept. 30, 2010, but then projects this funding gap to more than halve as a share of the economy by the end of Obama's term in January 2013.
Investors want to know that the White House is serious about fiscal responsibility, and failure to convince them could hit the dollar and bond markets.
Investors, including vital creditors like China, want to see credible steps to curb the deficit and debt over time.
Doubts about U.S. sincerity about controlling the deficit and capping debts could hit the dollar and drive borrowing costs higher, with investors demanding a bigger return to keep buying bonds issued by the U.S. government.
Obama's latest budget proposal forecast public debt rising by 2020 to almost 80 percent of the economy, measured by gross domestic product, from 64 percent this year.
He has tried to make fiscal prudence the centerpiece of his message on the economy while spending hundreds of billions of dollars in the near-term to kick-start growth. But the White House is not pretending that curbing costs will be painless.
"We are going to have to take some very tough decisions in the years going forward about what we can and what we cannot afford," Gibbs said.
(Reporting by Alister Bull; Editing by Will Dunham)