* President says no need to risk further tension
* Comments balanced to offend neither Japan nor China in territorial row
* Squabble over South China Sea enters more contentious chapter
By Jeff Mason and James Pomfret
PHNOM PENH, Nov 20 U.S. President Barack Obama urged Asian leaders on Tuesday to rein in tensions in the South China Sea and other disputed territory, but stopped short of firmly backing allies Japan, the Philippines and Vietnam in their disputes with China.
The comments illustrate the challenge facing newly re-elected Obama in managing Sino-U.S. ties that have become more fraught across a range of issues, including trade, commercial espionage and the territorial disputes between Beijing and Washington's Asian allies.
"President Obama's message is there needs to be a reduction of the tensions," Deputy National Security Adviser Ben Rhodes said after the East Asia Summit in the Cambodian capital Phnom Penh. "There is no reason to risk any potential escalation, particularly when you have two of the world's largest economies - China and Japan - associated with some of those disputes."
The comments appeared carefully calibrated not to offend either side.
They follow a three-day trip by Obama to three strategically important Southeast Asian countries: old U.S. ally Thailand, new friend Myanmar and China ally Cambodia, in a visit that underlines Washington's expanding military and economic interests in Asia under last year's so-called "pivot" from conflicts in the Middle East and Afghanistan.
Obama's attention was divided as he tried to stay on top of the unfolding crisis in Gaza. He dispatched Secretary of State Hillary Clinton from the summit to the Middle East for a round of troubleshooting talks in Israel, the West Bank and Egypt.
A decades-old territorial squabble over the South China Sea is entering a new and more contentious chapter, as claimant nations search deeper into disputed waters for energy supplies while building up their navies and military alliances with other nations, particularly with the United States.
Beijing claims almost the entire sea as its territory based on historical records, setting it directly against U.S. allies Vietnam and the Philippines, while Brunei, Taiwan and Malaysia also lay claim to parts.
The Philippines lodged a formal protest on Tuesday against summit host Cambodia, accusing the Chinese ally of trying to stifle discussions on the South China Sea when leaders of the Association of Southeast Asian Nations (ASEAN) met on Monday.
On Tuesday, China defended its stand to not discuss the South China Sea issue at multilateral forums. Beijing prefers to deal with other claimants on a bilateral basis.
"We do not want to bring the disputes to an occasion like this," Chinese Premier Wen Jiabao told the summit, according to Chinese Deputy Foreign Minister Fu Ying.
"We do not want to give over emphasis to the territorial disputes and differences, and we don't think it's a good idea to spread a sense of tension in this region," Wen added.
Several leaders at the summit raised the South China Sea issue, including a dispute over Scarborough Shoal, where Philippine and Chinese ships faced off in April. That prompted a firm response from China, Fu told reporters.
"Huangyan Island (Scarborough Shoal) is China's territory," Fu quoted Wen as telling the summit. "China's act of defending its sovereignty is necessary and legitimate."
The South China Sea failed to earn a single mention in an 11-page concluding summit statement read by Cambodian Prime Minister Hun Sen, a victory for China, which has sought to keep it off the formal agenda.
Hun Sen lived up to his authoritarian image, taking no questions in a 29-minute news conference. He said he was too tired.
Earlier, in his first meeting with a Chinese leader since his re-election, Obama said Washington and its chief economic rival must work together to "establish clear rules of the road" for trade and investment. But he stopped short of accusing China of violating those rules, a hot topic in his re-election campaign.
"I'm committed to working with China and I'm committed to working with Asia," Obama told Wen in a bilateral meeting. Wen highlighted "the differences and disagreements between us" but said these could be resolved through trade and investment.
Japanese Prime Minister Yoshihiko Noda said mounting Asian security problems raise the importance of the U.S.-Japan alliance, a veiled reference to tensions over Chinese sovereignty claims and maritime disputes.
"With the increasing severity of the security environment in East Asia, the importance of the Japan-U.S. alliance is increasing," Noda told Obama.
Sino-Japanese relations are also under strain after the Japanese government bought disputed islands known as Senkaku in Japan and Diaoyu in China from a private Japanese owner in September, triggering violent protests and calls for boycotts of Japanese products across China.
China says both disputes involve sea lanes vital for its economy and prefers to address conflicts in one-on-one talks.
Hun Sen said on Sunday Southeast Asian leaders agreed not to internationalise the row over the South China Sea and to confine talks to between ASEAN and China -- a claim disputed by Philippine President Benigno Aquino.
A stern-faced Philippine Foreign Minister Albert del Rosario said his delegation had been shocked when a Cambodian official told a news conference that ASEAN leaders had reached a consensus at their summit on Sunday.
"Consensus means everybody. I was there, the president (Aquino) was there and we're saying we're not with it because there's no consensus," del Rosario told reporters. "How can they say there's consensus when we're saying there's no consensus?"
It was the second time in five months Cambodia was accused of bowing to Chinese pressure and thwarting regional debate on the issue. A July ASEAN foreign ministers meeting, also in Phnom Penh, broke down in acrimony and failed to agree on a communique for the first time, just weeks after the standoff between a Philippine warship and Chinese vessels.