EU to consider pay limits for hedge funds

* Sweden makes surprise proposal on hedge fund pay

* Swedes say want "level playing field" in finance

* Move follows backlash to earlier Swedish compromise bid

* Hedge funds group says managers paid only for success

By John O'Donnell and Lawrence Fletcher

BRUSSELS/LONDON, Nov 12 (Reuters) - The European Union will consider as soon as this week rules to limit the pay of hedge fund managers, a spokeswoman for the Swedish minister in charge of reaching agreement on the legislation said on Thursday.

The EU is scrutinising a raft of new regulations for hedge funds and others that include imposing tough borrowing limits, which the industry has warned could force it into exile.

But so far the industry, which in Europe is concentrated in London's upmarket west end, has avoided any clampdown on pay despite an international consensus that remuneration for bankers should be controlled.

On Thursday, the spokeswoman for Sweden, which holds the EU presidency, said it would propose a law to European countries to restrict pay at hedge funds and other investment firms such as private equity.

"It is important that we create a level playing field between different parts of the financial industry," she told Reuters.

Her comments follow a surprise announcement this week by Sweden's financial services minister, Mats Odell, on pay rules for the funds one politician dubbed locusts and which are known for making reverse bets on company stocks rising or falling. Although the funds did not play a central role in the global financial crisis, many politicians have long been suspicious of their activity, prompting the EU's executive European Commission to draft rules to keep close tabs on them.

There has been a general drive to clamp down on financial services. The G20 group of leading countries, which includes the European Commission and several EU states, agreed to guidelines on banker pay drawn up by the Financial Stability Board, a global regulatory body.

These lay down how remuneration should be structured and outline, for example, when a banker's bonus should be paid.

The Alternative Investment Management Association, a hedge fund lobby, said it supported the G20 remuneration measures but cautioned against wider application of bank pay curbs.

"Hedge fund managers earn their fees only if they are successful, that is if they increase the value of their clients' investments," AIMA executive director Florence Lombard said.