* Laos to host Asian summit next week

* Obama first sitting president to visit Laos

* Laos more nuanced on S.China Sea

* New leaders more friendly to neigbouring Vietnam

* But China still dominates business scene in Laos

By Marius Zaharia

VIENTIANE, Aug 28 (Reuters) - The secretive communist government of Laos, a country with a population of less than 7 million, rarely causes a ripple on the diplomatic circuit. And yet its sleepy capital will spring to life next week when global leaders arrive for an Asian summit.

Barack Obama will be among them, making the last push of his presidency to 'rebalance' Washington's foreign policy towards Asia, a strategy widely seen as a response to China's economic and military muscle-flexing across the region.

The might of Laos' giant neighbour to the north is hard to miss in Vientiane: wealthy Chinese driving SUVs overtake tuk-tuks sputtering along the roads and Chinese-backed hotels sprout from noisy construction sites in one of Asia's most low-rise cities.

But diplomats say Obama could be pushing on an open door in Laos, thanks to a change of government there in April.

They say the country's new leaders appear ready to tilt away from Beijing and lean more closely towards another neighbour, Vietnam, whose dispute with China over the South China Sea has pushed it into a deepening alliance with the United States.

"The new government is more influenced by the Vietnamese than the Chinese," said a Western diplomat in Southeast Asia." "It's never too late for a U.S. president to visit."

Obama will become the first sitting U.S. president to visit landlocked Laos, where the United States waged a "secret war" while fighting in Vietnam, dropping an estimated two million tonnes of bombs on the country. About 30 percent of the ordnance failed to explode, leaving a dangerous and costly legacy.

Laos has strategic importance to both Vietnam and China. Vietnam has a long land border with Laos that gives it access to markets in Thailand and beyond. For China, Laos is a key gateway to Southeast Asia in its "new Silk Road" trade strategy.

Laos, which is developing a series of hydropower plants along one of the world's longest rivers, the Mekong, aims to become "the battery of Asia" by selling power to its neighbours.

SHIFTING POLICY

It is difficult to read policy in Laos because its leaders are so uncommunicative, but Western diplomats have detected some shifts.

First, deputy Prime Minister Somsavat Lengsavad - who ran the steering panel for a $7 billion Chinese rail project - retired. The project is now believed to be on hold because Laos is unhappy with the terms of the deal.