BEIJING (Reuters) - China will step up its support for the economy, flexibly using policy tools, including banks' reserve requirement ratios (RRR) and interest rates, the Politburo, a top decision-making body of the ruling Communist Party, was quoted by state media as saying on Tuesday.

China will continue to implement a prudent monetary policy and proactive fiscal policy, Politburo said, according to the official Xinhua news agency, after a meeting chaired by President Xi Jinping.

"The sustained recovery and improvement of the economy still face many challenges," the Politburo added, pointing to problems such as insufficient demand, huge pressures on firms, risks and hidden dangers in key areas of the economy.

"At the same time, it must be noted that China's economic foundation is stable, with many advantages, strong resilience, and great potential."

China will issue ultra-long term special treasury bonds as soon as possible, and speed up the issuance of local government special bonds to maintain the necessary intensity of fiscal expenditure, the news agency quoted the Politburo as saying.

"We need to flexibly use policy tools such as interest rates and reserve requirement ratios, increase support for the real economy, and reduce the overall cost of social financing," it said.

China will coordinate and improve policies to reduce housing inventories and optimize policy measures for new housing, the Politburo added.

Additionally, Beijing will continue to reform small- and medium-sized financial institutions, and take measures to promote the healthy development of the capital market.

Moreover, steps will be taken to deepen the implementation of local government debt-risk resolution plans and help reduce the debt burden in provinces and cities, the Politburo said.

(Reporting by Beijing Newsroom, Ellen Zhang and Kevin Yao; Editing by Himani Sarkar)