* China, Malaysia boost ties hours after Obama cancels Asia trip
* Xi, Najib boost military cooperation
* China-Malaysia trade seen tripling to $160 bln by 2017
By Yantoultra Ngui
KUALA LUMPUR, Oct 4 (Reuters) - China and Malaysia agreed on Friday to elevate bilateral ties to a "comprehensive strategic partnership", aiming to boost military cooperation and nearly triple two-way trade to $160 billion by 2017.
Chinese President Xi Jinping and Malaysian Prime Minister Najib Razak spoke soon after U.S. President Barack Obama cancelled a week-long tour of four Asian nations, including Malaysia, due to the U.S. government shutdown.
Najib said he agreed with Xi, who is visiting Malaysia ahead the Asia-Pacific Economic Cooperation summit in Indonesia that Obama was to have attended, to encourage more joint military exercises and visits between the nations.
China is already Malaysia's largest trading partner, with two-way trade last year totalling 181 billion ringgit ($57 billion). Trade between the two countries, which rose at an average annual of 15.7 percent between 2002 and 2012, is expected to hit $70 billion by the end of this year.
"We have agreed to strengthen our partnership with naval defence, joint military exercises to combat terrorism and promote security," Xi told a news conference in the Malaysian administrative capital Putrajaya.
"This will create a sound environment for peace and the prosperity of both countries," he said.
The two leaders declined to answer questions from reporters.
China has been steadily increasing its influence in the region in recent years, although not always harmoniously and has clashed with several countries over territorial disputes.
Faced with China's growing influence across the region, Obama announced in 2011 a pivot towards Asia as the United States brought wars in Iraq and Afghanistan to an end.
Malaysia is one of several Asian nations that has competing territorial claims with China over the resource-rich South China Sea, but it has kept a lower profile in the dispute than the Philippines and Vietnam and downplays regional concerns over Beijing's rising military clout.
In addition to soaring trade, Malaysia has seen an increased flow of Chinese investments in recent years in sectors such as logistics and property.
China's Guangxi Beibu Gulf International Port Group Ltd said last month it was buying a 40 percent stake in Kuantan Port Consortium Sdn Bhd for 334.4 million ringgit ($94 million), a move that would pave the way for 3 billion ringgit worth of extension works at the biggest port on the east coast of peninsula Malaysia.
Late last year, Chinese property developer Country Garden Holdings Co Ltd said it was buying 11 hectares of prime waterfront land in a big industrial zone in southern Malaysia for almost 1 billion ringgit ($328.97 million).
Xi said in Indonesia on Thursday China hoped that trade with the 10-member Association of Southeast Asian Nations would reach $1 trillion by 2020.