UPDATE 1-With rare China trip, Blinken aims to steady rocky relationship

(Adds Pentagon statement on suspected Chinese spy balloon)

By Humeyra Pamuk and Michael Martina

Feb 2 (Reuters) - When U.S. Secretary of State Antony Blinken meets his Chinese counterpart in Beijing next week there will be plenty to disagree about, from Taiwan to chips and trade. But they will both be trying to answer the same question: How can the world's two biggest economies avoid a new Cold War?

Ties between the superpowers have frayed over the past few years and sank to their worst in decades last August, when then U.S. House of Representatives Speaker Nancy Pelosi visited Taiwan, prompting unprecedented Chinese military drills near the self-ruled island.

Since then, President Joe Biden's administration has said it hopes to build a "floor for the relationship" and ensure that rivalry does not spiral into conflict. Biden met with Chinese President Xi Jinping in November with that goal in mind and both leaders pledged more frequent communications.

Complicating matters, the Pentagon said on Thursday that a suspected Chinese spy balloon has been flying over the United States for a few days, adding that Washington has been tracking it since it entered the U.S. airspace.

It was not immediately clear how the incident would impact Blinken's trip, during which he has been expected to meet Chinese Foreign Minister Qin Gang and possibly Xi.

Another key point of tension is the intensified U.S. regulatory onslaught focused on China, including export controls that could hobble its chip manufacturing industry.

With a new U.S.-Philippines agreement to grant the United States greater access to military bases and a likely Taiwan visit by new House Speaker Kevin McCarthy, analysts see Blinken's main task during the Feb. 5-6 meetings as ensuring both countries can avoid a crisis.

"I think the goal is to basically fast-forward this Cold War to its detente phase, thereby skipping a Cuban Missile Crisis," said Jude Blanchette, a China expert at Washington's Center for Strategic and International Studies (CSIS).

"This is really about reestablishing the undergirding of the relationship and putting in place some procedures and mechanisms to be able to manage through some of the tensions in the relationship," he told a CSIS briefing on the visit.

LOOKING FOR STABILITY

China is also keen for a stable U.S. relationship so it can focus on its economy, battered by the now abandoned zero-COVID policy and neglected by foreign investors alarmed by what they see as a return of state intervention in the market.