Spain approves bank rescue fund - gov't

MADRID, June 26 (Reuters) - Spain on Friday approved a bank restructuring fund to spur mergers and prevent possible solvency problems at smaller banks from affecting confidence in large, publicly-traded institutions, a government source said.

With Spanish banks hit by spiralling bad debts after the collapse of a real estate boom, the Socialist government issued a decree to create the Fund for Ordered Bank Restructuring (FROB), firing the starting gun on an expected wave of bank tie ups and interventions.

Economy Minister Elena Salgado is expected to present details of the fund at some time after 1140 GMT.

(Reporting by Andrew Hay; Editing by Jason Webb)