June 18, 2013 / 4:03 PM / 4 years ago

France plans fund to ease burden of toxic municipal loans

* Fund would help local authorities with structured loans

* French state eager to prevent wave of costly lawsuits

PARIS, June 18 (Reuters) - The French government will set up a special fund to help the numerous local authorities that are struggling with the burden of "toxic" loans, the finance ministry said on Tuesday.

The fund is to be set up with local authorities to help them wind down such structured bank loans in a way that would be acceptable for all parties, the ministry said in a statement.

It would have "significant resources" and would be partly financed by the banking sector, the ministry said without giving a specific figure. Les Echos newspaper reported that the sum could be close to 1 billion euros ($1.33 billion).

Dozens of towns and cities across France are fighting risky structured loans that went sour after the financial crisis, saddling them with double-digit repayment rates and in some cases pushing mayors to go on debtors' strikes.

The northern Paris suburb of Seine-Saint-Denis recently won a court case against bailed-out municipal lender Dexia, raising the hopes of other local authorities they could do the same.

The towns accuse banks such as Dexia of having missold them the loans, which were indexed to everything from foreign currencies to U.S. loans. The bank says it acted lawfully.

Because the state has bailed out Dexia, it is eager to keep the Seine-Saint-Denis case from leading to a wave of similar cases, which could become a strain on its finances.

In addition to setting up the fund, the government said it would bring out legislation in the second half of the year to deal with the matter.

As part of the winding down of Dexia, state-backed bodies have taken on 8.3 billion euros of loans sold by Dexia, of which 1.5 billion euros are already the target of lawsuits.

Fresh from its initial court victory, Seine-Saint-Denis said on Tuesday it was launching eight new lawsuits against Dexia's state-backed successor, German bank Depfa and French banks Credit Agricole-CIB , and Natixis.

A French parliamentary report has estimated some 17 billion euros worth of toxic loans were sold to local authorities with Dexia making up about half of the amount. ($1 = 0.7492 euros) (Reporting by Leigh Thomas and Yann Le Guernigou)

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