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(Changes to ...two of the world's biggest... from ...two biggest... in fifth paragraph)
* Google may pull out of China due to search censorship
* Clinton says case raises very serious concerns
* Clinton met top tech execs, plans "Internet freedom" policy
* China is world's largest Internet market by users (Adds Clinton comment on Google)
By Alexei Oreskovic and John Poirier
SAN FRANCISCO/WASHINGTON, Jan 12 (Reuters) - Google Inc may pull out of China because of censorship and cyber attacks on rights activists, further straining Sino-U.S. relations as Washington prepared to tackle global Internet censorship.
Google(GOOG.O), the world's top search engine, said on Tuesday it may close down its Chinese-language google.cn website and shut its offices after it uncovered sophisticated China-based attacks on human rights activists using its Gmail service around the world.
U.S. Secretary of State Hillary Clinton said she was seeking an explanation from Beijing on the Google case which raised "very serious concerns and questions".
While word of Google's announcement spread quickly among China's Internet users, the government and state media remained silent.
Relationships between two of the world's biggest economies have been strained recently over climate change, trade and other matters. China is the largest lender to the United States, holding around $800 billion in Treasury bills.
"It is setting us up for a clash, and it's interesting to see who backs down. It's the U.S. versus China, but the companies will be lobbying. The technology sectors are intimately intertwined," said Chris McNally, a China analyst at East-West Center in Hawaii.
A Clinton aide separately said she planned to help citizens in other countries, including China, get uncensored access to the Internet, and last week had met top executives from companies including Google, Microsoft Corp (MSFT.O), Twitter and Cisco Systems Inc (CSCO.O).
Companies moving into China, which has the largest number of Internet users in the world, have been criticized frequently for ignoring human rights, while Beijing recently has accused Google of being a funnel for pornography.
"This is a clash of behemoths. This is a big country and this is a big company. The problem for Google, of course, is that if they say, 'We are going to pull out of China,' China could very well turn around and say, 'Good, we have a billion people who want to take your place,'" said former U.S. Department of Justice computer crimes chief Mark Rasch.
China's policy of filtering and restricting access to websites has been a frequent source of tension with the United States and tech companies like Google and Yahoo Inc YHOO.O.
Shares of Google dipped 1.3 percent although an executive described China as "immaterial" to its finances. It was not clear if the U.S. company and the U.S. government coordinated their moves.
"Google was in contact with us prior to the announcement. Every nation has an obligation, regardless of the origin of malicious cyber activities, to keep its part of the network secure. That includes China," said U.S. State Department spokesman P.J. Crowley.
U.S. President Barack Obama, during a visit to China in November, told an online town hall that he was "a big supporter of non-censorship."
"I can tell you that in the United States, the fact that we have free Internet -- or unrestricted Internet access -- is a source of strength, and I think should be encouraged," he said.
Eurasia Group said U.S.-China relations were the top risk of 2010. "We'll see significant deterioration in U.S.-Chinese relations in the coming year," it said, citing economic, security and cyber-security pressures.
"These attacks and the surveillance they have uncovered -- combined with the attempts over the past year to further limit free speech on the Web -- have led us to conclude that we should review the feasibility of our business operations in China," Google Chief Legal Officer David Drummond said in a statement posted on the company's blog.
RBC Capital Markets analyst Stephen Ju said the move was a complete turnaround for Google. "Just about every earnings call recently has been that they are focused on the long-term growth opportunities for China and that they are committed."
Analyst and China Internet expert Rebecca MacKinnon of the George Soros' Open Society Institute said that Google was saying "enough is enough".
"If anybody is in the lead, it's Google and not the State Department, in terms of knowing what they're doing and having something to say," she said.
China would get the message, she added: "How exactly they are going to react to this, I cannot anticipate, but it's likely that it will not be pretty," she said.
Some 20 other companies also were attacked by unknown assailants based in China, said Google. [ID:nN12210451]
A Google spokesperson said the company was still investigating the attack and would not say whether Google believed Chinese authorities were involved.
In a statement, Clinton said: "We look to the Chinese government for an explanation. The ability to operate with confidence in cyberspace is critical in a modern society and economy."
She added the United States would have further comment as the facts in the case become clear.
Clinton will unveil a tech policy initiative on "Internet freedom" on Jan. 21, aide Alec Ross said in an interview with Reuters.
"If you think about Internet freedom from the Caucasus to China to Iran to Cuba and elsewhere, people do not have universal access to an uncensored Internet," Ross said.
"Our policies on Internet freedom in part are a response to the fact there are countries around the world that systematically stifle their citizens' access to information."
- For more stories, double-click [nSGE60C01H] (Additional reporting by Gabriel Madway, Jim Finkle, Ian Sherr, Braden Reddall, Clare Baldwin, Paul Eckert, Edwin Chan and Tiffany Wu) (Writing by Peter Henderson in San Francisco; Editing by Steve Orlofsky and Jeremy Laurence)