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(Fixes spelling of “loath” in penultimate paragraph)

* No statement from Chinese or U.S. officials on Chen

* U.S. secretaries of state and treasury due in China next

week

* Supporter says Chen wants end to harassment, not exile

* Impact on US-China ties and markets unclear, but a worry

By Chris Buckley and Michael Martina

BEIJING, April 28 (Reuters) – Blind Chinese activist Chen

Guangcheng is under U.S. protection in Beijing after an

audacious escape from 19 months under house arrest, a U.S.-based

group said on Saturday, in a drama that threatens to ignite new

tensions between the two governments.

The United States has not confirmed publicly reports that

Chen, who slipped away from under the noses of guards and eyes

and ears of surveillance equipment around his village home in

eastern Shandong province, fled into the U.S. embassy.

China has also declined direct public comment on Chen’s

reported escape, which threatens to overshadow a two-day meeting

with top Obama administration officials, including Secretary of

State Hillary Clinton, in Beijing from Thursday.

But Texas-based ChinaAid said it “learned from a source

close to the Chen Guangcheng situation that Chen is under U.S.

protection and high level talks are currently under way between

U.S. and Chinese officials regarding Chen’s status.”

“Because of Chen’s wide popularity, the Obama Administration

must stand firmly with him or risk losing credibility as a

defender of freedom and the rule of law,” Bob Fu, president of

the religious and political rights advocacy group that has long

campaigned for Chen’s freedom, said in an email.

The standoff carries political risk for President Barack

Obama, whose presumptive Republican challenger in November’s

election, Mitt Romney, has painted Obama as weak on China.

“The Obama Administration will be inviting attack from the

Romney campaign … if the right course is not decided

immediately,” said Michael Pillsbury, a former senior official

in the previous three Republican administrations.

The reports of Chen’s escape come nearly three months after

a Chinese official, Wang Lijun, fled into a U.S. consulate for

over 24 hours on Feb. 6, unleashing a scandal that rattled the

ruling Communist Party a few months before it is to head into a

once-in-a-decade leadership handover.

Wang’s brief flight to the U.S. consulate led to the

downfall of top official Bo Xilai who had been openly

campaigning for a place in the inner circle of power in Beijing.

Wang was taken into custody by central government authorities

when he left the consulate.

Pu Zhiqiang, a Beijing lawyer and rights advocate, said

reliable contacts also told him that Chen took refuge in U.S.

embassy grounds. The incident will be another damaging blot on

China’s security services, following Wang’s flight, said Pu.

“Everyone knew about the suffering of Chen Guangcheng and

his family but nobody dared raised his head over this and

ignored it,” he told Reuters, referring to Chinese officials.

“Chen Guangcheng has been the most typical victim of this

lawless, boundless exercise of power,” said Pu. “But the day has

finally come when he has escaped from it.”

Chen, a self-schooled legal advocate who campaigned against

abortions forced under China’s “one child” policy, had been held

under extra-legal confinement in his village home in Linyi since

September 2010 when he was released from jail.

His confinement with his family under relentless

surveillance fanned protests by Chinese sympathisers and

criticism from foreign governments and groups.

Chen’s escape and the furor it has unleashed could add to

the headaches of China’s ruling Communist Party, which is

striving to ensure stability and authority before the leadership

transition later this year.

It also threatens to overshadow a visit by Clinton and

Treasury Secretary Timothy Geithner, who are due in Beijing next

week for the annual high-level talks between the two countries.

Asked whether any issue could force the meeting to be

canceled or postponed, Chinese Vice Foreign Minister Cui Tiankai

said, “I don’t know why you’d ask the question.”

Cui told a news conference he had “no information” on Chen.

A U.S. State Department source said on Saturday there was no

change to plans for Clinton and Geithner to attend the May 3-4

Strategic & Economic Dialogue consultations.

“We’re going,” said the source, who spoke on condition of

anonymity.

It was unclear whether the two countries might find a way to

defuse the situation – either quickly so as to avoid disrupting

the talks or over the longer term – but current and former U.S.

officials said they thought China was likely to want to find

some kind of resolution rather than jeopardize the relationship.

“I can’t imagine they will tank the relationship. This isn’t

the same as a spy plane incident or Tiananmen Square. I do think

they will try to manage it,” said a senior Obama administration

official who spoke on condition that he not be identified.

ChinaAid’s Fu told Reuters that Chen’s flight was not timed

to take advantage of the high-level diplomacy.

“There’s really no calculation. He was totally cut off from

the outside world and has been preparing for this moment for

months,” he said by telephone from Texas.

“Chen’s first wish is that he can be guaranteed freedom just

like normal Chinese citizens in China. To be exiled is not his

first choice,” added Fu.

U.S. economic analysts who follow China voiced conflicting

views on the potential of Chen’s standoff to disrupt bilateral

ties – and by extension the world economy.

Bonnie Baha, portfolio manager at the $32 billion DoubleLine

Capital, said “the timing couldn’t be worse” with the Clinton

trip and with Beijing “already embarrassed over the Bo Xilai

scandal.”

“Given the state of the world’s economy and the level of

economic interdependence which currently exists this certainly

has the potential to roil world markets,” she said.

But David Hale, an economist based in Chicago and veteran

China watcher, said he saw “nothing new in this and (it) will

continue so long as China remains an authoritarian country.”

“I do not think this will have a major impact on the

markets. The Obama administration will try to manage this in a

low-key way,” he said.

Hu Jia, a Beijing dissident who met Chen several days ago in

Beijing, recounted that Chen said he would not seek asylum from

within the U.S. embassy.

“If they catch him, there will be unprecedented retaliation

against him. So in the end we decided there was only one place

that could guarantee his safety,” Hu said, referring to the

embassy.

“Before making a decision to go there, he said he wanted to

stay and fight, and not request asylum,” added Hu.

Later Saturday, Hu was escorted away by a group of police,

according to his wife Zeng Jinyan. More police were likely to

come to take her away as well, she said.

“The situation is very complicated. The police are outside

right now,” Zeng said in a strained voice before ending the

conversation.

Fu said Chen’s wife, mother and daughter are “still under

tight house arrest,” while his older brother, Chen Guangfu, and

nephew have been arrested and other relatives and neighbors were

taken away for questioning.

Washington and other Western governments have criticised

Beijing’s jailing and confinement of dissidents, protesters and

other citizens who challenge Communist Party power. China says

such criticism is unwelcome meddling in domestic affairs.

SENSITIVE MOMENT

Two prominent Chen supporters, friend He Peirong and Beijing

researcher Guo Yushan, were out of contact on Saturday. Fu said

He was detained on Friday morning in the city of Nanjing but was

unaware of Guo’s fate.

“I was actually talking to her and the last words she said

were ‘the PSB has arrived,'” Fu said, referring to the Public

Security Bureau.

There was no sign of any greater than normal security around

the U.S. embassy, a fort-like compound of concrete and steel in

northeast Beijing.

If Chen is sheltering inside, that could thrust Washington

into the midst volatile leadership politics in China, recalling

the case of dissident astrophysicist Fang Lizhi. He hid inside

the U.S. ambassador’s resident with his wife after the 1989

Tiananmen crackdown, to Beijing’s outrage.

Fang settled in the United States and died recently.

Officials in Shandong said on Saturday they had no comment

on Chen’s escape. State media has made no mention of the saga.

“It is the Shandong government that has bungled this by

turning a small matter into an international affair,” said Li

Datong, a former editor at the China Youth Daily, a party paper,

who was pushed aside for denouncing censorship. “It is certainly

a loss of face for the central government.”

Economics professor Michele Boldrin of Washington University

in St. Louis said the security lapse that allowed Chen to escape

likely would make China loath to complain too loudly.

“I expect the Chinese government to follow the usual

procedure: complain loudly, use strong words for the internal

propaganda and then eventually get down to business when it is

time to do business,” said Boldrin, a research fellow at the

Federal Reserve of St. Louis.

(Additional reporting by Paul Eckert and Arshad Mohammed in

Washington, Tiziana Barghini, Jennifer Ablan and Daniel Bases in

U.S. bureaux; Writing by Ben Blanchard; Editing by Ed Lane,

Jackie Frank and Paul Simao)