By Jeff Mason and James Pomfret

PHNOM PENH (Reuters) - President Barack Obama urged Asian leaders on Tuesday to rein in tensions in the South China Sea and other disputed territory, but stopped short of firmly backing allies Japan, the Philippines and Vietnam in their disputes with China.

The comments illustrate the challenge facing newly re-elected Obama in managing Sino-U.S. ties that have become more fraught across a range of issues, including trade, commercial espionage and the territorial disputes between Beijing and Washington's Asian allies.

"President Obama's message is there needs to be a reduction of the tensions," Deputy National Security Adviser Ben Rhodes said after the East Asia Summit in the Cambodian capital Phnom Penh. "There is no reason to risk any potential escalation, particularly when you have two of the world's largest economies - China and Japan - associated with some of those disputes."

The comments appeared carefully calibrated not to offend either side.

They follow a three-day trip by Obama to three strategically important Southeast Asian countries: old U.S. ally Thailand, new friend Myanmar and China ally Cambodia, in a visit that underlines Washington's expanding military and economic interests in Asia under last year's so-called "pivot" from conflicts in the Middle East and Afghanistan.

Obama's attention was divided as he tried to stay on top of the unfolding crisis in Gaza. He dispatched Secretary of State Hillary Clinton from the summit to the Middle East for a round of troubleshooting talks in Israel, the West Bank and Egypt.

A decades-old territorial squabble over the South China Sea is entering a new and more contentious chapter, as claimant nations search deeper into disputed waters for energy supplies while building up their navies and military alliances with other nations, particularly with the United States.

Beijing claims almost the entire sea as its territory based on historical records, setting it directly against U.S. allies Vietnam and the Philippines, while Brunei, Taiwan and Malaysia also lay claim to parts.

PHILIPPINE PROTEST

The Philippines lodged a formal protest on Tuesday against summit host Cambodia, accusing the Chinese ally of trying to stifle discussions on the South China Sea when leaders of the Association of Southeast Asian Nations (ASEAN) met on Monday.

On Tuesday, China defended its stand to not discuss the South China Sea issue at multilateral forums. Beijing prefers to deal with other claimants on a bilateral basis.

"We do not want to bring the disputes to an occasion like this," Chinese Premier Wen Jiabao told the summit, according to Chinese Deputy Foreign Minister Fu Ying.

"We do not want to give over emphasis to the territorial disputes and differences, and we don't think it's a good idea to spread a sense of tension in this region," Wen added.

Several leaders at the summit raised the South China Sea issue, including a dispute over Scarborough Shoal, where Philippine and Chinese ships faced off in April. That prompted a firm response from China, Fu told reporters.

"Huangyan Island (Scarborough Shoal) is China's territory," Fu quoted Wen as telling the summit. "China's act of defending its sovereignty is necessary and legitimate."

The South China Sea failed to earn a single mention in an 11-page concluding summit statement read by Cambodian Prime Minister Hun Sen, a victory for China, which has sought to keep it off the formal agenda.

Hun Sen lived up to his authoritarian image, taking no questions in a 29-minute news conference. He said he was too tired. Continued...