US President George W Bush on Tuesday welcomed steps by Vietnam toward permitting greater religious freedom after meeting with the communist government's prime minister, Nguyen Tan Dung.

"We talked about freedom, religious and political freedom, and I told the prime minister that I thought the strides the government is making towards religious freedom is noteworthy," Bush told reporters after the Oval Office meeting.

He did not elaborate. Religion remains under state supervision in the mostly Buddhist country of 85 million.

A White House spokesman pointed to the State Department's International Religious Freedom report for 2007 which said new religious congregations were registered in Vietnam and citizens were allowed to practise religion more freely.

However, last month the US Commission on International Religious Freedom urged the State Department to put Vietnam back on a religious rights blacklist, two years after it was removed from the list. The State Department said such a move was not merited.

Separately, several US companies, including Alcoa Inc and Motorola, signed deals to invest in Vietnam in a bid to further expand business between the two countries. US exports to Vietnam grew by close to 73 per cent in 2007.

Dung also said the two countries had agreed to begin negotiating a bilateral investment treaty.

"When concluded, this agreement will provide US investors in Vietnam with key legal protections and enhanced market access with important direct and collateral benefits for US exporters and consumers alike," said US Trade Representative Susan Schwab.