UPDATE 2-Canada's Flaherty says no direct China talks on M&A reciprocity

* Flaherty unaware of China-Canada quid pro quo talks

* Ottawa under pressure to clarify foreign investment rules

* Canada wants China to ease problems of big firms

OTTAWA/CALGARY, Oct 24 (Reuters) - Canadian Finance Minister Jim Flaherty said on Wednesday he knew of no direct talks between Ottawa and Beijing about making approval of CNOOC Ltd's bid for Nexen Inc conditional on the approval of Canadian deals in China.

Legislators in the ruling Conservative Party, suspicious of allowing Chinese state-owned firms to buy Canadian energy assets, say Canada should demand concessions in return for approving the proposed $15.1 billion purchase.

Officials say the government intends to put pressure on China to resolve delays and problems that companies such as Bank of Nova Scotia and Manulife Financial Corp are experiencing with their Chinese operations.

``There have been no direct discussions on that subject of which I am aware,'' Flaherty told reporters in response to a question about reciprocity.

The government has come under pressure to clarify its position on foreign investment after a shock decision to block a bid by Petronas for Progress Energy last week. Many saw that veto as raising the risk of CNOOC's bid also being rejected.

Flaherty said work was being done to clarify foreign investment rules and stressed that substantial capital was needed for major projects in the oil-rich western province of Alberta and elsewhere.

Prime Minister Stephen Harper said on Monday he wanted to unveil a new framework for investment rules at the same time as announcing a decision on both the CNOOC and Petronas bids.

Earlier this month Industry Minister Christian Paradis - who on paper is in charge of the review process - extended the probe into the CNOOC bid by 30 days to Nov 9. Paradis told Reuters on Wednesday he could say nothing about the process and said Ottawa would take the time needed to study the bid.

One challenge for the Conservatives is that the people of Alberta - the party's most solid center of support - are ambivalent about Chinese investment.

A poll released on Wednesday by the University of Alberta's China Institute said people in the province backed trade with China, and that as many supported Chinese investment in resources as opposed it.

The vast majority, however, were against takeovers of companies by state-controlled enterprises.

Gordon Houlden, a former Canadian diplomat in China and the institute's director, said he believed one reason for the stance against full ownership was deep-rooted and long-standing protectiveness toward Alberta's resources.

``But now you add the foreign dimension .... and China with all of its baggage - it has a mixed image, positive and negative,'' Houlden said.

``That baggage ... (along with) the corporations, which in the views of some people are controlled by the Chinese government, combine to weaken support for Chinese investment in the energy sector,'' he told Reuters.

The survey of 1,210 Albertans by the University of Alberta's China Institute found 45 percent believe the western Canadian province can learn from China's economic success and that nearly three out of five Albertans agree that their government should promote energy exports to China.

Thirty-seven percent think partial ownership by Chinese investors is acceptable, while 36 percent do not.

But only 15 percent support the idea of Chinese investment in the form of full ownership of assets and just a quarter of those surveyed agreed with allowing energy investments by companies owned by the Chinese government.