* Obama says Lew "a low-key guy" and "master of policy"
* Lew, 57, appears likely to win Senate confirmation
* He faces Republican questions about spending reforms
* Chamber of Commerce chief says Lew will do "just fine"
By Roberta Rampton and David Lawder
WASHINGTON, Jan 10 (Reuters) - President Barack Obama on Thursday nominated his chief of staff, Jack Lew, as the next Treasury secretary, praising him as a expert on the pressing national issues of U.S. government spending cuts and deficit reduction.
If confirmed by the Senate as expected, Lew would succeed Timothy Geithner and take the lead on difficult negotiations with Congress on how to cut the nation's massive debt and rein in spending - a central challenge for Obama's second term.
Lew, a 57-year-old New Yorker who has previously served as White House budget chief, is likely to face tough questions from Republicans in his Senate Finance Committee confirmation hearing after the bruising year-end battle over tax increases on the wealthy.
Obama described Lew as "a low-key guy who prefers to surround himself with policy experts rather than television cameras," and said the son of a Polish immigrant had a deep belief in public service.
"Over the years, he's built a reputation as a master of policy who can work with members of both parties and forge principled compromises," Obama said.
Since the Treasury secretary signs U.S. currency, Obama teased Lew for his unusually loopy signature and joked that the nominee had promised "to make at least one letter legible in order not to debase our currency."
Denis McDonough, Obama's deputy national security adviser, is considered the leading candidate to replace Lew as White House chief of staff.
Lew has experience in tough financial negotiations, having led talks with Congress in 2011 that brought a deal to avert a U.S. debt default. A similar battle looms now.
As budget director for former President Bill Clinton, he presided over a string of budget surpluses between 1998 and 2000. "For all the talk out there about deficit reduction, making sure our books are balanced, this is the guy who did it, three times," Obama said.
NEXT STEP: THE SENATE
Lew's nomination now will be vetted by the Senate, where Senate Finance Chairman Max Baucus, a Democrat, promised a "speedy but thorough" hearing. No date has yet been set.
Senator Orrin Hatch, the top Republican on the panel, said he plans to ask Lew about the administration's strategy for spending cuts, something Republicans have insisted needs to be made clear before they will agree to raise the debt ceiling.
Obama has vowed not to negotiate over the debt ceiling, which could be reached as early as mid-February.
"It's imperative that Mr. Lew outline the administration's plans on tackling our unsustainable debt, what areas of federal spending should be cut, and what kind of reforms - from our tax code to our entitlement programs - are needed to get our fiscal house in order," Hatch said in a statement.
Senator Bernie Sanders of Vermont, an independent who caucuses with Democrats, said he would not vote for Lew because he did not think he would "stand up" to Wall Street and lobbyists. Sanders said Lew likely would win enough votes for confirmation.
Republican Senator Jeff Sessions of Alabama said he thinks Lew "needs to be held accountable" for Obama's economic policies.
"We need somebody with international credibility, a heavyweight financial person to help get this country's growth path moving," Sessions told Reuters.
LEW A 'TOUGH DUDE'
At the White House announcement, Geithner earned sustained applause for his work helping the administration navigate the financial crisis that put banks at risk and cratered the housing market early in Obama's first term.
At least two former White House budget directors were in the audience for the Lew announcement, including Alice Rivlin, who headed the budget office in the early 1990s, later became a vice chair of the Federal Reserve, and who remains a fixture in fiscal policy debate.
Also attending was Franklin Raines, who led the budget office from 1996 to 1998. He was ousted as chief executive of mortgage finance giant Fannie Mae after an accounting scandal.
Some analysts have questioned whether Lew has enough experience working on international financial issues and on banking regulations.
But the White House has highlighted international experience Lew gained during a stint at the State Department, and his "strong relationships in the business community," having worked as a managing director at Citigroup.
Thomas Donohue, president of the U.S. Chamber of Commerce, said that all Treasury secretaries have to "compensate for the areas where they don't have experience" with strong deputies.
Donohue, whose business lobby has often butted heads with the Obama administration, told reporters he thought Lew was a "skilled operative" and a "tough dude."
"I think Jack Lew will do fine," Donohue said.