UPDATE 1-China vice premier Liu He says prevention of financial risks a top priority

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BEIJING, March 27 (Reuters) - China's Vice Premier Liu He, President Xi Jinping's top economic adviser, said the prevention and resolution of risks in the country's financial sector is a priority, according to the official Xinhua news agency on Tuesday.

Liu said China also needs to deepen financial reforms and further open up the sector, with market forces providing the cue, Xinhua reported.

Liu, a confidant of Xi, was speaking at a meeting with the central bank and financial regulators, following the appointment of a new People's Bank of China (PBOC) governor and the head of a merged banking and insurance watchdog.

The widely anticipated merger of the China Banking Regulatory Commission and China Insurance Regulatory Commission was aimed at resolving issues such as unclear responsibilities and cross-regulation.

The move to tighten oversight of China's $42 trillion banking and insurance sectors comes as Beijing cracks down on riskier lending practices and cut high corporate debt.

China is among global economies seen as most vulnerable to a banking crisis, according to the Bank for International Settlements, though Beijing has maintained that debt risks are under control.

Guo Shuqing has been appointed as the new merged banking and insurance regulator and as a vice governor at PBOC. Guo will work closely with PBOC's new chief Yi Gang, a protege of China's longest-serving central banker, the widely respected Zhou Xiaochuan.

"China should quicken the pace of role adjustments for the banking and insurance regulators to strengthen their supervision capabilities," Liu, a Harvard-trained economist, said.

Liu said China should also keep its monetary policy prudent and neutral.

In Beijing's reform of its state institutions, it has also launched a campaign to root out officials engaged in corrupt practices in the financial sector.

Xiang Junbo, former chairman of the insurance watchdog, last April became the highest-ranking finance industry official to be investigated for corruption.

"China will also provide a strong political foundation for its financial work by upholding its anti-corruption campaign," Liu said.

Since his elevation into China's 25-member Politburo, the second-highest tier in Beijing's political power structure after the seven-member Politburo Standing Committee, Liu has emerged as an assertive voice in the government on not just the economy, but also trade and finance.

Liu is involved in China's trade dialogue with the United States, and was the Chinese official that U.S. Secretary Steven Mnuchin spoke with last week as trade tensions between the world's two biggest economies flared anew. (Reporting by Yawen Chen, Min Zhang, Se Young Lee and Ryan Woo Editing by Edmund Blair and Alison Williams)