UPDATE 2-US is vigilant on sovereign wealth funds-Treasury

(Recasts first paragraph, adds byline, background, and Schwarzman comment, 8th paragraph)

By Al Yoon

NEW YORK, April 14 (Reuters) - Sovereign wealth funds have been a force for good in the global economy, but their rapid growth warrants a vigilant stance by the U.S. government, Deputy Treasury Secretary Robert Kimmitt said on Monday.

"The number of funds and holdings is at a point, and will grow such, that vigilance is required that they continue to be a positive influence and we don't see rising protectionism," he said at a panel discussion put on by the Asia Society in New York.

Sovereign wealth funds, investment funds owned by national governments, have become increasingly active in buying U.S. assets with expanding foreign exchange reserves from oil sales and trade. The funds have assets between $1.9 trillion and $2.9 trillion, and could grow to $15 trillion in the next eight years, the Treasury has estimated.

Panelists, including Blackstone Group Chief Executive Officer Stephen Schwarzman, warned that the rising tide of capital from abroad has already spurred protectionist reaction hurtful to the U.S. economy. While that concern is warranted, most of the funds are interested in playing by the U.S. government's rules, which will protect the American economy, Kimmitt said.

Foreign investments, including those by companies as well as sovereign funds, have triggered concerns in the United States about foreign influence or control of domestic assets.

In one such case, opposition from the Treasury's Committee on Foreign Investment in the United States blocked a $2.2 billion bid for U.S. network equipment maker 3Com Corp. (COMS.O: Quote, Profile, Research, Stock Buzz) by China's Huawei Technologies Co Ltd HWT.UL and private equity firm Bain Capital Partners. Huawei's stake in 3Com would have been up to 21.5 percent. Several U.S. lawmakers had complained that the deal threatened national security due to Huawei's alleged ties to the Chinese military.

In another example, Dubai Ports World's DPW.DI planned purchase of a British company that owned U.S. ports in 2006 drew a wide range of criticism in the United States from lawmakers and others who argued that the investment could endanger national security.