* Geithner says U.S. to preserve dollar's value
* Geithner says global economy still faces big challenges * Restoring, stabilising U.S. financial system vital
(Recasts with quotes from news conference)
By Glenn Somerville
JEDDAH, July 14 (Reuters) - U.S. Treasury Secretary Timothy Geithner said on Tuesday he saw signs of confidence returning to the U.S. financial sector and pledged that the United States would pursue policies that preserve the dollar's value.
"The policies of the United States are designed to lay the conditions for a strong dollar for more stability in the international monetary system and among the major economies," he said at the Jeddah Chamber of Commerce.
Geithner, who arrived in Saudi Arabia overnight from London, is aiming to reassure Gulf Arab states that the United States wants their investments and that their U.S. dollar assets are safe. He travels to Abu Dhabi in the United Arab Emirates on Wednesday and will also make a stop in Paris on Thursday.
Signs of strength were also returning to the economy, he said. "We are seeing very active issuance in corporate bonds and equity markets and the banking system itself in the United States shows signs of more confidence," Geithner said.
Geithner said aggressive efforts to counter a global financial crisis were starting to work and acknowledged the United States had a special duty to help spur a recovery.
"Given the dollar's role in the international financial system and the significant impact of the U.S. economy on global economic conditions, we fully recognise that the United States has a special responsibility to play," he said.
Five of the six Arab states that comprise the Gulf Cooperation Council -- Saudi Arabia, the UAE, Bahrain, Qatar and Oman -- peg their currencies to the dollar. The sixth, Kuwait, uses a basket heavily weighted in dollars.
As he did in London, Geithner said the global economy faced severe challenges but sounded a reassuring note about future prospects if "steady, forceful and sustained" support continues until private investment and spending lead a recovery.
"The force of the global recession is receding," Geithner said.
STABILISE, REPAIR
He said it was vital to stabilise and repair a damaged U.S. financial system and outlined efforts to do so. "No recovery is possible without repairing the institutions and markets that are critical to the supply of credit," Geithner said.
He said a $787 billion U.S. economic stimulus programme, designed to boost demand over a two-year period, will have its largest impact on the spending side over the next six months.
Geithner made no mention of calls from some U.S. lawmakers to consider another stimulus package, instead emphasising the need for patience with the current one.
In the United States, he said there was some pickup in business and consumer confidence and that the cost and availability of needed credit was improving.
"These improvements have been more substantial and have come more quickly than many of us expected when we were designing these programmes in December and January," he said.
He praised Saudi Arabia for having put in place one of the largest stimulus packages of any G20 country and noted that the G20 itself -- which groups industrial nations and key emerging economies -- will take on a growing role in shaping the architecture of the global financial system.
Geithner cautioned that it would take "considerably more time" to get the global economy back onto a path of sustained growth. He noted the IMF recently upgraded its global forecast, predicting 2.5 percent growth for 2010.
That is "slower than typical for recoveries, but recovery nonetheless", Geithner said.
When recovery is established, he said the United States would quickly unwind the exceptional measures it has put in place and get its budget deficits under control.
"We are very committed to make sure that as we get through this crisis to bring down our fiscal deficits and to reverse these extraordinary interventions that we have taken," he said.
Soaring U.S. deficits, which require mounting borrowing to pay for government's day-to-day operations, are fostering concern about the dollar's value.
The U.S. Treasury chief was scheduled to fly from Jeddah to Yanbu on Thursday afternoon to meet Saudi King Abdullah and his advisers including Finance Minister Ibrahim al-Assaf, then depart in the evening for Abu Dhabi. (Editing by Stephen Nisbeth)