Washington  - US President Barack Obama defended the spending outlined in his budget Tuesday, saying investments in health care, energy and education are essential to long-term economic growth and eventually bringing deficits under control.

Obama defended the 3.6-trillion-dollar budget proposal that have been the subject of intense criticism from Republican and some Democratic members of Congress who warn it will pass along huge deficits to future generations.

The Congressional Budget Office has predicted that the spending would increase the national deficit to 9.3 trillion dollars over 10 years, more than 2.3 trillion dollars more than the White House's own estimates. Obama has insisted that his administration inherited a deficit from his predecessor George W Bush and that the spending will spur economic recovery that will help trim deficits in the future.

"What we've said is, let's make the investments that ensure that we meet our growth targets that put us on a pathway to growth as opposed to a situation in which we're not making those investments and we still have trillion-dollar deficits," Obama said in the second primetime news conference of his presidency.

Obama also said his 787-billion dollars economic stimulus and efforts to unlock the credit crunch behind the financial crisis that dragged the economy into a recession are beginning to work.

Obama cited mortgage rates falling to record lows, increased home sales and price stability on the housing market as evidence of the economic progress made under his administration during its two months in office.

"We're beginning to see signs of progress," Obama said.

Meanwhile, Obama flatly rejected China's call for a global currency that would gradually replace the dollar as an international reserve. China is seeking a gradual shift away the dollar to a global currency under the International Monetary Fund.

"I don't believe that there's a need for a global currency," Obama said at a White House press conference Tuesday night, adding that the dollar "is extraordinarily strong right now."

China's government has expressed concerns in the last month over its nearly 1-trillion-dollar holdings of US government debt amid the worst global recession since World War II. Russia has made similar suggestions for an international currency.

US Treasury Secretary Timothy Geithner and the chairman of the Federal Reserve, Ben Bernanke, also rejected the Chinese plan during congressional testimony earlier Tuesday.

Obama views investments in health care, education and energy as key to pulling the US economy out of the recession. He believes the investments could create up to 3 million jobs while tackling major challenges the United States is facing, like dependence on foreign oil.

Growing health care costs in the United States will be a major cause of government deficits if a new approach is not taken now, the president said.

"Let's do a whole host of things, some of which cost money on the front end, but offer the prospect of reducing costs on the back end," he said.

On foreign policy, Obama played down the prospects for quick achievements.

He acknowledged that a new Israeli government headed by conservative Benjamin Netanyahu, who has been sceptical of a two state solution, means achieving peace will not be "easier than it was."

"It is critical for us to advance a two-state solution where Israelis and Palestinians can live side by side in their own states with peace and security," Obama said.

Netanyahu, the leader of the Likud party, struck a coalition agreement with the centre-left Labour Party earlier Tuesday that will make him the country's next prime minister. Netanyahu has been critical of a two-state solution endorsed by Obama, former president George W Bush and most of the international community. (dpa)