UPDATE 1-Norway finmin wants state control of key rate, cites rigging risk
* Finance ministry wants Nibor to under government control
* Follows controversy in Norway and Libor scandal in Britain
* Norwegian financial lobby welcomes move
OSLO, Aug 30 (Reuters) - The Norwegian banking regulator should bring the setting of the benchmark Norwegian interbank lending rate under government control due to concerns that the rate could be manipulated, the finance ministry said on Friday.
The decision follows calls for tighter regulation by the regulator in April after the central bank said some foreign banks had complained about suspected manipulation of Nibor, the Norwegian Interbank Offered Rate, which many bonds are linked to.
The central bank has refused to disclose the names of these lenders. The financial regulator said it had not found evidence of rate-rigging, but neither could it rule out that rigging could have happened.
The controversy in Norway comes in the wake of the Libor scandal in Britain, after some of the world's biggest banks were embroiled in compensation claims worth billions of dollars following a rate-rigging scandal over the UK equivalent London Interbank Offered Rate (Libor).
"The finance ministry has today asked the Financial Supervisory Authority to draft new rules to bring its benchmark interest rate under government regulation and supervision," the ministry said in a statement, adding the draft should be ready by the end of March next year.
"The Ministry has also asked for a report on what needs there are for different types of benchmark rates in the Norwegian market, and what new benchmark interest rates it may be possible to establish," it said, adding that the report should be done by the end of May 2014.
The lobby for the Norwegian financial sector welcomed the moves. "Finance Norway previously advocated for Nibor to be subject to government control or supervision," the organisation said in a statement. (Reporting by Gwladys Fouche; editing by Stephen Nisbet)
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