BEIJING (Reuters) -The United States and China, the world's two biggest economies, must compete fairly and communicate closely to avoid misunderstandings, U.S. Treasury Secretary Janet Yellen said in Beijing on Saturday.

Yellen, continuing her meetings with top Chinese officials, told Vice Premier He Lifeng that a bilateral record for trade set last year despite recent tensions showed there is "ample room for our firms to engage in trade and investment".

But it was critical to keep talking about areas of common interest as well as disagreements, she said.

Meeting her at the Diaoyutai state guest house, where foreign dignitaries are often received in Beijing, He said he stood ready to work with Yellen.

She said: "Amid a complicated global economic outlook, there is a pressing need for the two largest economies to closely communicate and exchange views on our responses to various challenges."

Doing so could "help both sides more fully understand the global economic outlook and make better decisions to strengthen our economies", she said.

Despite talk of U.S.-China economic decoupling, recent data show a trade relationship that is fundamentally solid, with two-way trade hitting $690 billion last year.

Yellen repeated her mantra that Washington is not seeking a winner-take-all approach or economic advantage in its relations with China, but wanted to ensure a healthy competition with a "fair set of rules" that would benefit both countries over time.

The United States would continue to communicate directly its concerns about specific economic practices, and would take targeted actions to protect its national security, Yellen said.

She urged China not to allow any disagreements to "lead to misunderstandings, particularly those stemming from a lack of communication, which can unnecessarily worsen our bilateral economic and financial relationship."

(Reporting by Andrea Shalal; Editing by Chizu Nomiyama and William Mallard)