* U.S. emphasizes dialogue as China, Japan tensions rise
* Clinton commends China for latest opening to ASEAN
* North Korea, Iran and Syria also on agenda of China meeting
By Andrew Quinn
NEW YORK, Sept 27 U.S. Secretary of State Hillary Clinton on Thursday urged China and Japan to let "cool heads" prevail in a festering dispute over a cluster of islands in the East China Sea that has soured ties between Asia's two largest economies.
Clinton met Chinese Foreign Minister Yang Jiechi on the sidelines of this week's U.N. General Assembly meeting in New York and said it was important to ratchet down tensions over the islands, known as the Diaoyu islands in China and the Senkakus in Japan, a senior State Department official said.
"The secretary ... again urged that cooler heads prevail, that Japan and China engage in dialogue to calm the waters," the official told reporters.
"We believe that Japan and China have the resources, have the restraint, have the ability to work on this directly and take tensions down, and that is our message to both sides," the official said.
Clinton was due to meet Japanese Foreign Minister Koichiro Gemba and South Korean Foreign Minister Kim Sung-hwan in a three-way meeting on Friday. Japan and South Korea, two close U.S. allies, have also seen their relationship rocked in recent months by maritime territorial disputes.
Sino-Japanese relations deteriorated sharply since Japan bought the islands from their private owner, hurting bilateral trade ties and tourism while sparking protests across China.
In hour-long talks on the sidelines of the United Nations on Tuesday, Japan's Gemba urged China to exercise restraint over the dispute. Japanese diplomats described the meeting as "tense," as Gemba endured a stern lecture from China's Yang.
The islands - located in waters thought to be rich in natural gas deposits - have been administered by Japan since 1895, but China has declared them "sacred territory" and Taiwan has also asserted its own sovereignty over the area.
Tokyo and Beijing have traded increasingly sharp words in the dispute, which has seen both countries send patrol boats in a game of cat-and-mouse in the waters near the disputed islands, raising concerns that an unintended collision or other incident could escalate into a broader clash.
The United States has repeatedly said it takes no position on the sovereignty dispute, but believes it is important for China and Japan to work out their differences peacefully.
In her meeting with Yang, Clinton also touched on territorial disputes in the South China Sea which have set Beijing against a number of its Southeast Asian neighbors including close U.S. ally the Philippines.
China has resisted calls by the United States and some Southeast Asian countries to agree on a multilateral framework to settle the disputes, preferring to engage with each of the other less powerful claimants individually.
The U.S. official said Clinton welcomed moves by China to restart informal meetings with members of the Association of Southeast Asian Nations (ASEAN), most recently in Cambodia two weeks ago, as a sign of progress.
"We expect these meetings are going to continue in the lead-up to the East Asia Summit in November," the official said. "This is precisely what the secretary has been advocating, that they restart a dialogue."
Clinton and her Chinese counterpart also discussed North Korea, which remains locked in a dispute with the international community over its nuclear program, as well as the possible next steps as the world's major powers confront Tehran over its own nuclear ambitions, the official said.
Clinton also raised the issue of Syria, where China has joined Russia in blocking U.S.-led moves within the U.N. Security Council to take tough measures against Syrian President Bashar al-Assad as his government engages in a bloody struggle against armed rebels. (Reporting By Andrew Quinn; editing by Todd Eastham)