By Tim Cocks

BAGHDAD, Nov 1 (Reuters) - A delay in agreeing a security pact with the United States could make investors wary of Iraq even though security is improving there, U.S. Deputy Treasury Secretary Robert Kimmitt said on Saturday.

"What business people are telling us is that they're watching that set of negotiations as they factor in the public policy component of their investment decision," Kimmitt said on the sidelines of a Baghdad investment conference.

"They are looking at the lack of agreement thus far on the new security arrangements -- as an indication of what security might be like in the future and as an indication of what it will be like when they are in negotiations with the Iraqi government."

Iraq and the United States are locked in protracted negotiations over an agreement that would enable U.S. troops to stay in Iraq beyond 2008.

U.S. officials have expressed exasperation after Iraq demanded changes to a final draft of the agreement last month, just days after it was approved by negotiators hand-picked by Prime Minister Nuri al-Maliki.

The pact calls for U.S. forces to withdraw from Iraq by the end of 2011 unless invited to stay, and allows them to be tried in Iraqi court for serious crimes committed while off duty.

Iraq wants changes, including firmer guarantees of the withdrawal date and a clearer explanation of when troops can be tried.

The pact would replace a U.N. Security Council resolution, which expires at the end of this year.

Violence in Iraq has fallen sharply. October was the safest month for civilians since the 2003 invasion, according to Iraqi government statistics released on Friday.

Kimmitt said a number of U.S. companies have approached him to express interest in the country, especially in oil and gas, but also manufacturing and finance.

"The companies who've been in touch with us ... certainly think it's a good time to look at investment opportunities."

The head of Iraq's government investment agency, Ahmed Ridha, said investors had proposals for $75 billion in development projects, including $17 billion to spruce up Baghdad's airport, awaiting approval from the cabinet.

"Iraq is the last green field for business. We need everything from infrastructure to petrochemicals," Ridha said. "Anyone who delays will suffer missed opportunities.

The country is in desperate need of reconstruction after decades of war and economic sanctions, and private sector investment has been painfully slow because of insecurity. Foreign direct investment in Iraq in 2006 was just $272 million. (Editing by Keith Weir)

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