UPDATE 2-USTR Kirk touts case against aid for Airbus

* Kirk says US worked "long and hard" to prove case

* Sen. Murray urges Obama block further European subsidies

* Sen. Shelby: some lawmakers pursuing "vigilante justice" (Adds background on case, more quotes)

By Doug Palmer

WASHINGTON, Sept 16 (Reuters) - U.S. Trade Representative Ron Kirk on Wednesday touted U.S. efforts to prove European support for aircraft manufacturer Airbus is illegal under world trade rules, but stopped short of declaring victory in a high-stakes legal battle.

"This agency has worked long and hard to make the case that the loans and other subsidies provided to Airbus are inconsistent with WTO rules," Kirk told Senator Richard Shelby, who one week ago said the European loan mechanism challenged by the United States "was ruled legal" by the World Trade Organization in a still confidential decision.

"The administration is not in a position to disclose publicly the content of the interim report in this dispute. However, I would like to clarify a few issues related to the claims the United States made," Kirk said in a letter.

However, if Kirk was reticent to characterize the WTO decision as a U.S. victory, Senator Patty Murray was not.

"This ruling is much more than a confirmation that Airbus has been breaking the rules. It is a victory for American workers who have been producing the best planes, but have been fighting an uphill battle," the Washington Democrat said in a speech on the Senate floor.

Murray, whose state is home to Boeing's (BA.N) biggest manufacturing facilities, said she has urged President Barack Obama "to take the strongest possible actions to prevent European governments from providing Airbus (EAD.PA) further with an additional illegal trade-distorting subsidy."

At stake are billions of new "launch aid loans" that European governments have pledged to help Airbus develop its latest project, the A350 wide-body jet.

TANKER BATTLE

Shelby and Murray are on the opposite ends of another fight that could be influenced by the outcome of the U.S. legal complaint against European support for Airbus.

Boeing hopes to beat out a partnership between Airbus parent EADS and Northrop Grumman (NOC.N) for a projected $35-billion contract to build a mid-air tanker refueling fleet for the U.S. Air Force.

Shelby is from Alabama, where a tanker based on a modified Airbus A-330 would be assembled if EADS and Northrop win the contract. In his letter last week to Kirk, he argued that nothing in the WTO ruling should prevent that from happening.

Shelby repeated that in a letter on Wednesday to Defense Secretary Robert Gates. He also accused Boeing supporters in Congress of pursuing "vigilante justice" against EADS and Northrop by insisting the Department of Defense take the preliminary WTO ruling into consideration.

"This preliminary report begins a three-year process of responses and appeals," Shelby said, adding "any sanction or penalty created through a U.S. government contract in response to this report would violate Article 23 of WTO rules."

In a further call for U.S. restraint, Shelby noted the WTO is expected to decide a complaint brought by the European Union against U.S. support for Boeing in early 2010.

NOT ACCURATE TO SAY WTO 'LEGAL'

Kirk, in his letter to Shelby, said the United States "did not challenge the simple fact that European governments have provided loans to Airbus" because there is no prohibition on government loans under WTO rules.

"Our arguments were directed only to whether the specific terms and conditions of launch aid amounted to a subsidy because the aid carried better than market rates," Kirk said.

"Moreover, if a series of subsidies is found to cause adverse effects, it would not be accurate to characterize them as WTO 'legal'," Kirk said.

He also took issue with Shelby's statement that the preliminary ruling was only "a first step in a multiyear process."

"The report itself is not a first step, but rather a critical step in finalizing this dispute, which has been under the most careful considered examination in the WTO for more than four years," Kirk said.

Both sides can appeal the decision after it becomes public in a few months.

(Reporting by Doug Palmer; Editing by Sandra Maler)