UPDATE 3-China-Canada oil deal raises political hackles in Washington

* Sen. Schumer: inter-agency committee should block CNOOC-Nexen deal

* Pelosi wants committee to 'thoroughly review' China acquisition

* Republicans say U.S. should drill more oil, approve pipeline

* CNOOC has asked for US review - source

By Roberta Rampton

WASHINGTON, July 26 (Reuters) - The U.S. government should block a bid by China's state oil company CNOOC for Canadian oil company Nexen until China's government provides fair access for U.S. companies that want to invest in China, a top Democratic senator plans to tell Treasury Secretary Timothy Geithner on Friday.

In a draft letter obtained by Reuters, Charles Schumer, the Senate's No. 3 Democrat and a frequent critic of China's trade and currency policy, said the powerful Committee on Foreign Investment in the United States (CFIUS) should not approve the deal until China makes "tangible, enforceable commitments" on market access for U.S. companies.

The U.S. inter-agency committee reviews foreign takeovers of U.S. assets for national security concerns. About 10 percent of Nexen's assets are in the United States, where it has oil drilling operations in the Gulf of Mexico.

CNOOC asked for a voluntary review by CFIUS on July 23, the same day it revealed its bid for the Canadian company, but the start date for the review is undetermined, a source close to the Chinese firm told Reuters.

The source declined to speculate on the outcome of the review.

Schumer's draft letter is the strongest statement yet by a U.S. political leader against the $15.1 billion deal, which is the biggest foreign acquisition for a Chinese company, and which would give China a significant foothold in North America's oil assets.

Schumer said he believes the proposed deal would benefit the United States and its energy sector, but said Geithner should "not miss this opportunity" to ensure China lives up to promises it has made to provide fair access for U.S. companies into Chinese markets.

"I respectfully urge you, in your capacity as chairman of the Committee on Foreign Investment in the United States (CFIUS), to withhold approval of this transaction to ensure U.S. companies reciprocal treatment," Schumer said in the draft letter.

The Democratic leader in the U.S. House of Representatives, Nancy Pelosi, also called for the committee to "thoroughly review" the CNOOC takeover.

"This deal prompts great concern about the Chinese government's continued attempts to use its state-owned enterprises to acquire global energy resources," Pelosi spokesman Drew Hamill said in a statement.

A Treasury Department spokeswoman did not immediately respond to a request for comment. The department typically does not confirm or discuss reviews by CFIUS.

The CNOOC source declined to comment on how the Chinese company would address congressional concerns about the deal.

REPUBLICANS BLAME OBAMA

Republicans in Congress have also expressed concern about the deal, although they stopped short of saying that the U.S. government should intervene.

"I'm concerned because it's really a trend, particularly in the Gulf of Mexico," Louisiana Senator David Vitter said. "I don't know enough about it to know whether it should be blocked through any American, U.S.-based law. But I do think the far better alternative is for us to play offense, and for us to be developing, taking advantage of these energy resources," Vitter, a Republican, told Reuters.

Vitter and other Republicans have blamed President Barack Obama's delay in approving the Canada-to0Texas Keystone XL pipeline for pushing Canada's government to more aggressively explore oil deals with China.

Obama has said a portion of the pipeline going through Nebraska needed more environmental review after the route was adjusted to avoid an ecologically sensitive area.

Senator John Hoeven, whose home state of North Dakota has become the nation's second-largest oil producer, said the United States should do more to develop its resources.

"Do we really want to be buying our oil or Canadian oil back from the Chinese? If we don't take action to develop our resources and work with our closest friend and ally Canada, that's exactly what's going to happen," Hoeven said at a news conference.

Hoeven and other Republicans said China's plan to invest in North American oil production shows the U.S. government needs a more aggressive energy policy. They unveiled a package of proposals that would allow for more drilling on government-owned land, reduce regulations, streamline drilling permits, and approve TransCanada's Keystone project.