(Adds report ordered by Congress)

By Dean Yates

BAGHDAD, Sept 5 (Reuters) - The top U.S. military commander in Iraq, General David Petraeus, has suggested he would recommend a cut in U.S. troop numbers around March when he delivers long-awaited testimony to Congress next week.

Petraeus said it was still very dangerous in Iraq, but President George W. Bush's deployment of 30,000 extra soldiers this year had produced an "initiative in general against al Qaeda, which is a change and that is an important change".

In Sydney for a meeting of Asia-Pacific leaders, Bush said on Wednesday he saw signs of progress in Iraq on both the military and political fronts and again held out the possibility of a cut in troop numbers from the current 160,000.

Petraeus, in an interview with ABC News late on Tuesday, signalled he was looking at March for reducing troop levels.

"The surge will run its course. There are limits to what our military can provide, so, my recommendations have to be informed by -- not driven by -- but they have to be informed by the strain we have put on our military services," said Petraeus.

"That has to be a key factor in what I will recommend."

Petraeus declined to be specific about the recommendations he made to Bush during the president's visit to Iraq on Monday but asked if the troop cuts could occur in March, he said: "Your calculations are about right."

He will present his report to the Democrat-controlled Congress on Sept. 10, along with the U.S. ambassador to Iraq, Ryan Crocker.

Bush is under mounting pressure from Democrats and some top Republicans who want U.S. forces to start leaving after more than four years of insurgency and sectarian violence in which 3,700 U.S. troops and tens of thousands of Iraqis have died.

Four U.S. soldiers were killed on Wednesday, the U.S. military said. Two were killed in combat in eastern Baghdad and the other two were killed by an explosion near their vehicle in Salah ad Din Province north of the capital.

U.S. opponents of the war have criticised Iraq's leaders for failing to pass laws seen as vital to healing divisions between the Shi'ite Muslim majority and Sunni Arabs, once-dominant under Saddam Hussein. Insurgents draw support from the Sunni minority.

MALIKI MEETING

In the Shi'ite holy city of Najaf, Prime Minister Nuri al-Maliki met the reclusive spiritual leader of Iraq's Shi'ite majority, Grand Ayatollah Ali al-Sistani, to seek his advice on filling vacancies in his cabinet caused by a series of walkouts.

"I discussed with him the case of the government. I asked his help in forming a government and nominating new ministers, or if there is the possibility to form a new government based on technocrats," Maliki, a Shi'ite, told reporters afterwards.

Sistani, sponsor of the prime minister's ruling United Alliance, rarely leaves his home in Najaf in southern Iraq.

Bush said in Sydney the Petraeus-Crocker recommendations would be key to helping him formulate strategy, but stopped short of saying whether a report he would submit to Congress afterwards would contain further specifics on troop levels.

He said no final decision had been made on troop levels.

"I'm not interested in artificial timetables, or dates of withdrawal. I'm interested in achieving an objective," Bush told a news conference with Australian Prime Minister John Howard.

A report ordered by Congress said the Iraqi National Police force should be scrapped and reorganised because of ethnic divisions in its ranks.

"The National Police have proven operationally ineffective," an independent commission headed by retired Marine General James Jones said in the report, whose conclusions and recommendations were obtained by Reuters.

"Sectarianism in its units undermines its ability to provide security; the (police) force is not viable in its current form. The National Police should be disbanded and reorganised."

The report -- one of several ordered by Congress -- was more positive about the Iraqi army, saying it was capable of taking over an increasing amount of combat duties from U.S.-led multinational forces.

But the army would not be able to operate on its own within the next 12 to 18 months, the report said.

The U.S. Government Accountability Office, the investigating arm of Congress, said on Tuesday Iraq had failed to meet 11 of 18 political and military benchmarks set by Congress in May, including elimination of militia control of local security.

"Violence remains high, the number of Iraqi security forces capable of conducting independent operations has declined, and militias are not disarmed," it said. (Additional reporting by Ross Colvin in Baghdad, Caren Bohan and Matt Spetalnick in Sydney and Eric Walsh and Susan Cornwell in Washington)

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