UPDATE 2-Geithner sees confidence return, supports dollar

* 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