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UPDATE 3-China's Xi says he wants to work out initial trade deal with U.S.

Cheng Leng and Ryan Woo

* Xi says wants to work out deal based on mutual respect, equality

* When necessary China will fight back, president says

* China did not start trade war, and does not want it -Xi (Adds broader concerns of Sino-U.S. ties in paragraph 7)

BEIJING, Nov 22 (Reuters) - China wants to work out an initial trade pact with the United States and has been trying to avoid a trade war, President Xi Jinping said on Friday, but is not afraid to retaliate when necessary.

Economists warn that a prolonged dispute between the world's two largest economies is elevating risks to the global economy by disrupting supply chains, curtailing investment and curbing business confidence.

"We want to work for a 'phase one' agreement on the basis of mutual respect and equality," Xi told representatives of an international forum, according to a pool report.

"When necessary we will fight back, but we have been working actively to try not to have a trade war. We did not initiate this trade war and this is not something we want."

Xi was responding to questions from representatives of the New Economy Forum organized by Bloomberg LP at the Great Hall of the People in Beijing.

Global financial markets retreated this week on fresh fears that the trade talks could flounder, with U.S. President Donald Trump expected to sign into law two bills backing protesters in the Chinese-ruled city of Hong Kong.

Concerns of a broader deterioration in Sino-U.S. ties also weighed on markets this week. U.S. Navy warships twice sailed near islands claimed by China in the South China Sea in recent days, angering Beijing.

Completion of a phase one trade deal could slide into next year, trade experts and people close to the White House have told Reuters, with Beijing asking for more extensive tariff rollbacks and Washington countering with increased demands of its own.

Delays would only bring more trouble, said Fred Hu, founder of China-based global investment firm Primavera Capital Group.

"The longer the time it takes, the more variables are there, such as the Hong Kong issue," Hu told Reuters on the sidelines of the Bloomberg forum.

China has invited top U.S. trade negotiators for a new round of face-to-face talks in Beijing, the Wall Street Journal said, citing unidentified sources. It added that Beijing hoped the talks could take place before next Thursday's U.S. Thanksgiving holiday.

U.S. officials have indicated willingness to meet but have not committed to a date, it added, and they would be reluctant to travel for the discussions unless China made clear that it would make commitments on intellectual property protection, forced technology transfers and agricultural purchases.

Officials from Beijing had suggested Xi and his U.S. counterpart Donald Trump might sign a deal in early December.

Some experts said the next date to watch was Dec. 15, when U.S. tariffs on about $156 billion in Chinese goods are set to take effect, including holiday gift items such as electronics and Christmas decorations.

"As we always said, we don't want to start the trade war, but we are not afraid," Xi said.

In Beijing on Wednesday, Vice Premier Liu He, China's chief negotiator in the trade talks, said he was cautiously optimistic on a phase one deal, Bloomberg News said, citing people who attended a dinner event ahead of the forum.

"The two countries should really ink the deal the sooner the better, at least a truce, and that will inject some certainty into the market and the economy," Hu said.

"Based on this, we can clear out a consensus on complicated structural problems, and strive for a comprehensive final agreement." (Reporting by Ryan Woo and Cheng Leng; Editing by Paul Tait and Clarence Fernandez)