By David Alexander

WASHINGTON, Feb 28 (Reuters) - A combative President Barack Obama warned on Saturday he was bracing for a fight against powerful lobbyists and special interests who sought to pick apart the $3.55 trillion budget he wants to advance his agenda of reform.

Obama's spending blueprint, with its massive $1.17 trillion deficit and tax hikes on the wealthy, seeks to squeeze billions of dollars in savings out of current spending through competitive bidding among health insurers and ending subsidies and tax breaks for banks, agribusiness and oil companies.

"These steps won't sit well with the special interests and lobbyists who are invested in the old way of doing business," the president said in his weekly radio address.

"I know they're gearing up for a fight as we speak," he said. "My message to them is this: So am I."

Republicans, in their radio response, warned that Democratic spending priorities threaten to destroy the American dream that hard work can build a better life for each successive generation of citizens.

"This week, the president submitted to Congress the single largest increase in federal spending in the history of the United States, while driving the deficit to levels that were once thought impossible," said Senator Richard Burr.

He said Obama's budget commits the government to a billion dollars a day in interest on the debt over the next decade.

"Now, instead of working hard so our children can have a better life tomorrow, we are asking our children to work hard so that we don't have to make tough choices today," Burr said.