* U.N. statement follows Sri Lanka ceasefire rejection
* U.S. officials said Washington wanted loan delay
* Sri Lanka military says advancing into rebel area
By Louis Charbonneau and Ranga Sirilal
UNITED NATIONS/COLOMBO, May 1 (Reuters) - U.N. Security Council members see no point withholding an IMF loan or taking other steps to punish Sri Lanka, the council’s president said, the same day Sri Lanka’s president rejected international calls for a ceasefire with rebels.
"I have not heard anyone suggesting that," Mexican Ambassador Claude Heller, president of the 15-nation council, told reporters on Thursday after an informal session on Sri Lanka.
Colombo has been under fresh pressure this week, from the European Union among others, to allow a truce so civilians trapped in the tiny area the Tamil Tigers still hold can escape.
Asked if all council members agreed penalties such as withholding the $1.9 billion loan were unnecessary, Heller said, "Absolutely."
U.S. officials said this week Washington was trying to delay the loan to pressure Sri Lanka to do more to help civilians caught in the fighting.
But Sri Lanka’s central bank said there was no delay in its application for the loan and negotiations were in the final stages. [ID:nSP500044]
Sri Lanka looks to the loan to help weather the global economic crisis and pay for postwar reconstruction. News of the U.S. officials’ comments hurt Colombo’s financial markets before the central bank’s statements restored confidence.
British Ambassador John Sawers said London agreed punishing Sri Lanka did not belong on the Security Council agenda.
"We’re not in the job of penalising the government of Sri Lanka," Sawers said. "We want to help the government of Sri Lanka to address this problem. I just wish that the government ... was more open to the offers of help that have been extended to it."
Earlier in the week British and French foreign ministers visited Sri Lanka and echoed a European Union call for a humanitarian ceasefire so civilians could escape the war zone. [ID:nSP471810]
But in a speech on Thursday in Sri Lanka before the Council session, President Mahinda Rajapaksa said: "We have at no time gone for a ceasefire. We will not do so now."
Colombo fears a ceasefire could allow the Tigers to regroup and re-arm, but says it is taking care not to target civilians in the rebel-held area of coastline the military puts at around 5 square kilometres (3 square miles).
The United Nations estimates up to 50,000 civilians are trapped there. The government puts the figure far lower, and said this week it would not use heavy weapons against the Tigers, while concentrating on trying to free civilians using small arms.
"Rescue operations are going on. Troops are advancing into the 5 kilometre stretch," Sri Lanka military spokesman Brigadier Udaya Nanayakkara said on Friday.
The area is the last redoubt of the Liberation Tigers of Tamil Eelam, who have been fighting a 25-year war with the government for a separate ethnic Tamil homeland.
In remarks prepared for the press, Heller said the council repeated calls on the government not to shell the conflict zone and urged the Tigers to stop using civilians as human shields and lay down their weapons.
The Tigers say the shelling is continuing and taking a heavy toll of civilians. The government denies that, but U.S. Ambassador Susan Rice made clear Washington had doubts.
"Despite the government of Sri Lanka’s promise to suspend combat operations, most accounts indicate that shelling into the conflict zone continues," she said in remarks prepared for delivery at the closed-door meeting.
"Very credible reports also indicate that the Tamil Tigers are using civilians as human shields, and have, in some cases, shot at civilians trying to leave the conflict area."
Sri Lanka’s military describes the latest fighting as involving small arms. It has still said it is inflicting heavy casualties, reporting scores of Tigers killed this week.
Claims from the battle zone are difficult to confirm given lack of media access and of independent observers on the ground. (Writing by Jerry Norton, Editing by Dean Yates)