By Tamora Vidaillet

PARIS, Nov 3 (Reuters) - French Economy Minister Christine Lagarde played down fears on Monday that local authorities have taken on too many risky loans, exposing themselves to skyrocketing interest payments and potential defaults.
A couple of local authorities in France have made public declarations in recent weeks about large proportions of their debt being vulnerable to wild gyrations in financial markets and blamed banks for touting risky investment strategies.
French banks stepped up lending to localities with repayment terms linked to variables such as foreign currencies, offering capped interest rates for the first few years but leaving them dangerously exposed to future swings in financial markets.
Questions have been raised over the extent of the problem in the euro zone's second-biggest economy as the government has called for a financial system less favourable to speculation.
Seine-Saint-Denis, an area just north of Paris that is home to 1.5 million people, has already said that around 97 percent of its 808 million euros ($1.04 billion) in loans was based on structured debt linked to volatile financial market instruments.
The southeastern city of St Etienne also revealed recently that over 60 percent of its estimated 380 million euros in debt was in structured debt products or swaps.
But Lagarde and Interior Minister Michele Alliot-Marie said only a handful of local authorities had got into hot water as they urged more transparency from banks.
"Only an extreme minority of local collectivities (are concerned)," Lagarde told reporters after a meeting with banks and local officials.
"The few difficult cases will be treated individually by all of the banks concerned and the representatives of local collectivities with difficulties," she said.
Steps would be taken so that banks would give clients better information on structuring their debt and local authorities could make sound investment decisions, she said, adding that an outline of best practice should be ready by the end of December.

Claude Bartolone, a senior parliamentarian from Seine-Saint-Denis told reporters he would meet Dexia, the recently state-salvaged Franco-Belgian bank, and Societe Generale soon to try and renegotiate his area's debt.
Fitch Ratings has estimated that around one quarter of the total 90 billion euros worth of outstanding debt taken out by France's municipalities, local authorities and regional governments, are based on structured products.
While it was normal to have some exposure to such products for hedging purposes, a lack of restrictions on risk-taking by local governments led to unhealthy levels of such debt taken for speculative purposes in some cases, Fitch has said.
(Reporting by Tamora Vidaillet; Editing by Andy Bruce) ($1=.7764 Euro) Keywords: FINANCE FRANCE/REGIONS

(tamora.vidaillet@reuters.com ; + 33 1 4949 5218; Reuters Messaging: tamora.vidaillet.reuters.com@reuters.net )

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