UPDATE 2-Obama hosts Ryan lunch in new outreach to Republicans on budget
* Obama lunches with House Budget Chairman Ryan
* Senate Republicans call Wednesday's dinner a good start
* Tax reform, entitlements part of broad discussion
WASHINGTON, March 7 (Reuters) - U.S. President Barack Obama expanded his fledgling search for Republican allies on a possible deficit-reduction bargain when he hosted lunch on Thursday for Paul Ryan, one of the House of Representatives' leading fiscal conservatives.
Obama's new engagement with opposition members of Congress, something not seen during his first term as president, is "a hopeful sign. I think something will come of it," House Speaker John Boehner told reporters.
In often acrimonious talks, Obama and Boehner, an Ohio Republican, failed over the past two years to reach a long-term deal to trim at least $4 trillion in deficits over 10 years.
Trying a new tack, Obama took a dozen Senate Republicans to dinner on Wednesday to launch a dialogue he hopes might end with a broad deal to reduce deficits.
On Thursday, Obama lunched at the White House with Ryan of Wisconsin, who spent much of last year bashing the Democratic president's fiscal policies when Ryan was the Republican vice presidential candidate.
Having lost November's election to Obama and Vice President Joe Biden, Ryan has resumed his job as chairman of the House Budget Committee, where he is in a position to chart his party's course on fiscal policy.
Representative Chris Van Hollen of Maryland, who joined Obama and Ryan at the White House lunch, said: "The more avenues of communication you have open, the more opportunity there is to resolve differences. Obviously, it's no guarantee that we'll get there, but you're guaranteed not to get there if you don't have these conversations going."
Van Hollen of Maryland, the top Democrat on House Budget Committee, spoke in an interview on MSNBC just ahead of the lunch.
Next week, Ryan and his Senate Democratic counterpart, Patty Murray, will float competing budget blueprints for 2014 that could become the platform for Obama to negotiate an elusive "grand bargain" for significant deficit reduction over the next decade.
In recent days, some prominent Republicans, such as Senator Lindsey Graham of South Carolina and former Florida Governor Jeb Bush, have expressed an openness to tax increases to help control annual deficits contributing to a national debt that has skyrocketed to $16.7 trillion.
In return, the White House has signaled a willingness to find savings in "entitlement" programs including Medicare healthcare for the elderly and disabled. Democrats have long positioned themselves as protectors of these social safety net programs.
This week has seen a flurry of overtures from Obama, from phone calls to Senate Republicans to Wednesday's dinner at a fancy hotel restaurant near the White House and the lunch at the White House.
Next week, Obama is expected to go to Capitol Hill for a rare lunch with all Senate Republicans - Maine lobster is on the menu - and to huddle separately with House members from both parties.
"The president is interested in finding out how wide that sentiment is" among Republicans in Congress for tax hikes in a deficit-reduction deal, said a senior Senate Democratic aide.
There are deep divisions in Congress over using new tax revenues to reduce the deficit. Boehner and Senate Republican leader Mitch McConnell of Kentucky, who both have to appease their party's conservatives, have been ruling out any new tax increases.
Boehner repeated that position on Thursday. "If the president continues to insist on tax hikes, I don't think we're going to get very far."
Graham called the dinner with Obama "productive and substantive," even as it spotlighted their major differences. "However, also apparent was common ground on how to move forward," Graham said. He did not provide details.
Pennsylvania Republican Senator Patrick Toomey, a staunch budget conservative, said the dinner revealed areas of potential agreement "but it's not going to happen over one dinner. If this were easy, we would have done it years ago."
Even as Obama and Republicans circle each other to gauge the willingness to make concessions on taxes and entitlement programs, some lawmakers involved in the talks stuck with long-held party positions.
Following the dinner, Republican Senator John Hoeven of North Dakota told Reuters the conversation centered around "how do we get to a big agreement in terms of the debt and deficit."
But later in the evening, Hoeven's office floated a statement from the freshman senator that held to an anti-tax stance.
"When our economy grows and more people are working, we broaden our tax base and our revenues increase, without raising taxes. A rising tide lifts all boats," Hoeven said.
"That's not going to do it for Democrats," said the senior Senate Democratic aide.