U.S. President Barack Obama's top economic adviser said on Monday the United States is on the path toward economic recovery, conditions in financial markets are steadier and there have been initial signs of stabilization in the housing market.

Thanks largely to the Recovery Act, alongside an aggressive financial stabilization plan and a program to keep responsible homeowners in their homes, we have walked a substantial distance back from the economic abyss and are on the path toward economic recovery, Larry Summers said in a letter to be sent to Republican House Leader John Boehner that amounted to a defense of the Democratic Obama administration's policies on the economy.

Obama is facing rising clamor to take new steps to lift the economy and jump-start job growth, as U.S. unemployment edges toward 10 percent and the country faces soaring budget deficits. The bleak jobs picture could put some of Obama's Democratic allies at risk in next year's congressional elections, unless voters are convinced they are doing all they can to help the economy.

Most importantly, we have seen a substantial change in the trend of job loss, Summers said in the letter, which the White House said was written in response to a letter from Boehner to Obama, which it did not release.

The U.S. economy lost jobs at a monthly average rate of 256,000 in the third quarter of 2009, which Summers termed unacceptably high. But he noted it was nearly a third of the pace of job losses of two quarters ago.

One dilemma for Obama is that Republicans, seizing on the rise in the unemployment rate to 9.8 percent, argue that the $787 billion stimulus package passed earlier this year was ineffective. Republicans are pushing for additional tax cuts as the solution to the country's economic woes.

TOUTING OBAMA PLAN, BLAMING REPUBLICANS

Summers said private forecasters have estimated that the stimulus program added 3 percentage points to second quarter annualized GDP growth, and that they have forecast a return to positive growth for the economy in the third quarter. They also said the unemployment rate would be two percentage points lower by the end of 2010 than it would have been without the stimulus plan, Summers wrote.

He noted the improvement in U.S. stock market performance since early this year and said, Conditions in our financial markets have stabilized, and the risk of financial collapse has receded. And he noted recent indicators showing that the housing market, which was central to the financial market collapse, has also shown signs of stabilization.

Hitting back at Republicans who are trying to lay blame on Obama for the U.S. budget deficit, Summers said Obama inherited a deficit well in excess of $1 trillion when he took office, and said the policies of Obama's Republican predecessor, former President George W. Bush, led to the shortfall.

The bipartisan commitment to fiscal discipline that existed during the 1990s evaporated during the 2000s. Every major policy enacted during this period violated the principle of paying for new proposals, Summers wrote.

Unpaid for tax cuts in 2001 and 2003 have added more than $2 trillion to the U.S. national debt, Summers said; the wars in Iraq and Afghanistan were not paid for and Congress in 2003 passed a Medicare Prescription Drug bill that was offset by neither spending cuts nor tax increases.

As he pushes for healthcare reform, his top domestic policy priority, Obama has insisted that his reform plans will not add to the deficit.

(Additional reporting by Caren Bohan, Editing by Alan Elsner)