WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson said on Wednesday he was concerned special-interest groups were lining up for handouts in an economic stimulus bill and urged senators to keep it focused on simple tax rebates.

Paulson, testifying before the Senate Budget Committee, said he did not want to spend money "that really isn't stimulus" as part of the approximately $150 billion spending package now under consideration in the Senate.

"I am increasingly concerned that in the Senate, the bazaar is open, the special interests are coming to the trough and that when I'm reading about and hearing about things like tax rebates for coal companies, the benefits for oil well drilling and things like this, I'm concerned that it's going to get bogged down," Paulson said.

"I'm concerned if we see things that aren't stimulus and aren't going to get money to the American people quickly, we'll get bogged down." he added.

Paulson said he would prefer to see the Senate pass the House of Representatives' $146 billion stimulus bill, which relies mainly on tax rebate checks and faster expensing of business equipment purchased this year.

He reiterated that extending unemployment benefits, a provision backed by many Democratic senators, was unnecessary given the current 4.9 percent unemployment rate, which is low by historical standards. Further actions could be discussed with Congress if economic conditions worsen, Paulson said.

However, he said he thought an agreement could be reached on Senate requests to have the stimulus cover veterans and senior citizens who would not receive rebate checks under the House plan.

Paulson's comments drew the ire of Senate Majority Leader Harry Reid, who said he was "offended" by suggestions that the Senate was opening government coffers to special interests.

Reid, a Nevada Democrat, said Paulson would have to explain his remark to those who have been unemployed for an extended period and disabled veterans who would get expanded benefits under the Senate Finance Committee bill, as well as struggling home builders, who have been lobbying for help.

"I think Mr. Paulson's been hanging around the White House too long," Reid said. "He's not that kind of a man."

Paulson also cautioned senators against passing legislation aimed at forcing China to raise the value of its yuan currency, saying such an effort was "bordering on the silly."

"I have engaged very actively with China. Engaged -- and I think with some results -- when you look the currency," Paulson told the Senate Budget Committee. "Don't be confused by the fact that I say I'd like them to move quicker, because I would like them to move quicker but their rate of appreciation of the currency roughly doubled last year to 6.7 percent."

Paulson also said the U.S. corporate tax system was inefficient and was putting American firms at a competitive disadvantage in the global economy.

He told the Senate Budget Committee that many countries now have lower nominal corporate tax rates than the United States and that other nations were not emulating the form of U.S. corporate taxes.

"I think in many ways the most expensive tax dollars we raise in terms of inhibiting competitiveness and jobs and growth are the way we tax our businesses that compete globally," Paulson said.

(Reporting by David Lawder; Editing by Jonathan Oatis)

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