I don't think it would be a good idea to use just water on an aggressive, unknown dog. I've had dogs bark and growl on our walks occasionally, but nothing like this. As to talking to the owner I'm not even 100% sure where the dog lives other than in the culdesac. At this point I don't think I'll say anything as it's never happened before, but I will protect myself and my dog as much as possible. IF it happens again you can be sure I'll notify animal control.
Oh and the dog lives around the corner and down a side street in our neighborhood. I could probably walk my dog just around my own short block and be okay, but I don't want to be limited.