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UPDATE 1-Mnuchin urges Congress to raise debt ceiling as another shutdown looms

looms@ (Adds details from letter, background)

WASHINGTON, Jan 31 (Reuters) - Treasury Secretary Steven Mnuchin on Wednesday called on the Republican-controlled Congress to lift the U.S. debt limit "as soon as possible" so the government can pay federal employee benefits and other obligations.

In a letter to congressional leaders and key committee chairmen, Mnuchin said the Treasury Department would continue to suspend payments into federal employee retiree, health and disability funds through Feb. 28.

Congress must raise the nation's debt ceiling to avoid a government default. The nonpartisan Congressional Budget Office has estimated that the U.S. Treasury would exhaust its borrowing options and could run out of funds to pay its bills by late March if lawmakers do not act.

The request comes as Congress is already wrestling with federal spending for the current fiscal year and faces the possibility of another government shutdown, with approved funding due to run out on Feb. 8.

Thanks to deep partisan divisions and intraparty squabbles, lawmakers have passed a series of short-term funding bills since the fiscal year that began last Oct. 1 but have been unable to agree on spending for the rest of that year, which ends Sept. 30. The government shutdown earlier this month for three days when Republicans and Democrats failed to find common ground.

In his letter dated Jan. 30, Mnuchin urged members of the U.S. Senate and House of Representatives "to protect the full faith and credit of the United States by acting to increase the statutory debt limit as soon as possible." The request was released publicly on Wednesday, and Mnuchin is scheduled to meet with Republican President Donald Trump later in the day.

The Treasury Department's deputy assistant secretary for financial markets, Clay Berry, said in a separate statement the department can fund the government through the end of February.

(Reporting by David Morgan; Writing by Susan Heavey; Editing by Will Dunham)