UPDATE 1-Steel-state lawmakers vow to save 'Buy American'

(Adds detail on Senate action, business groups letter)

By Doug Palmer

WASHINGTON, Feb 4 (Reuters) - Lawmakers from steel-producing states insisted on Wednesday that a "Buy American" plan remain part of the huge U.S. economic stimulus bill after President Barack Obama said Congress should look at dropping or changing it to avoid starting a trade war.

"If it's not in, I'm not supporting this package and I'll bring a lot of votes with me," House of Representatives Transportation Committee Chairman James Oberstar, a Minnesota Democrat, said after a Congressional Steel Caucus hearing.

Senator John McCain, an Arizona Republican, was expected to offer an amendment to strip the Buy American provision from the Senate's stimulus bill, while other lawmakers were working on changes to make sure it was consistent with U.S. trade pacts.

Obama, in television interviews on Tuesday, said the United States had to be careful not to include any provisions in the stimulus plan that could "trigger a trade war."

"I think it would be a mistake ... at a time when worldwide trade is declining, for us to start sending a message that somehow we're just looking after ourselves and not concerned with world trade," Obama said on the Fox network.

His comments came as the Senate debated a nearly $900 billion stimulus plan that would allow only U.S.-made iron, steel and manufactured goods to be used in public works projects funded by the bill.

That built on a $825 billion stimulus plan passed last week by the House that required the use of U.S.-made iron and steel in public works projects.