(Adds comments from exclusive Reuters interview)

By Pedro da Costa and Kristina Cooke

NEW YORK, Feb 20 (Reuters) - There is nothing wrong with nationalizing failed financial institutions, even if it is not ideal for governments to manage banks, French Economy Minister Christine Lagarde told Reuters on Friday.

Markets were again in disarray this week, with U.S. stocks falling to new lows as investors feared government takeovers of banks after Germany took some steps in that direction.

"Nationalization is not a dirty word," she said in an interview at the sidelines of a meeting at Columbia University.

"It's sometimes a tool and a way to restore a situation for a temporary period of time -- and then there's privatization again."

Lagarde said world leaders are committed to preventing another failure of a major bank like that of Lehman Brothers, which collapsed in September and triggered a deepening of the global financial crisis.

The minister was broadly supportive of U.S. Treasury Secretary Timothy Geithner's plan to rescue the financial sector. The plan has been widely criticized for being too vague to yield near-term results.

"I fully appreciate and understand his approach," she said.