* Shares in EDF soar as much as 10 pct, reach 16-month high
* Govt to hike tariffs 5 pct in August 2013 and August 2014 (Updates with competitors' comments)
By Ingrid Melander
PARIS, July 9 The French government is planning the biggest increase in power prices in at least a decade to cover rising costs at state-owned utility EDF.
The energy and environment ministry said on Tuesday it was planning a 5 percent increase in state-controlled electricity tariffs in August and 5 percent more in August next year.
It is seeking to stave off lawsuits by EDF's competitors, which argue that artificially low tariffs distort competition.
Shares in EDF leapt as much as 10 percent on the news and were trading at a 16-month high of 19.26 euros by 1310 GMT.
UBS analysts upgraded the stock to "neutral" from "sell", saying the tariff decision and the likely extension of the life of nuclear plants in France should enable EDF to continue paying a 6.5 percent dividend yield.
In the past decade, successive French governments have limited power price rises to 2 percent per year, except in 2003 and 2010, when they rose 3 percent.
However, the country faces a situation similar to Spain, where higher costs than tariffs have forced debt onto the books of private utilities such as Iberdrola.
The price hike is less than recommended by French regulator CRE, which said in June that electricity tariffs for households should rise between 6.8 and 9.6 percent this summer and that the gap between tariffs and EDF's costs was 1.47 billion euros ($1.9 billion) last year.
The energy and environment ministry said in the statement it had decided to spread out the increase over several years "to protect households' purchasing power as much as possible."
France fell into a shallow recession in the first quarter of the year and purchasing power shrank in 2012 for the first time in nearly 30 years.
The Anode association of alternative electricity producers which compete with EDF welcomed the tariff hike.
"It's a good signal for consumers' visibility on the reality of cost evolution and energy prices," said Fabien Chone, who heads the association which filed a complaint against the government's two percent tariff hike in 2012.
The government was due to put the 5 percent increase proposal to the regulator on Tuesday.
The tariff debate is complicated by the possibility the government might cut its 84.4 percent stake in EDF, possibly to about 75 percent.
Traders have said if the state wants to get a good price for its shares, it should provide maximum visibility on tariffs.
EDF has seen its debt balloon partly because the extra cost of producing renewable energy is more than the subsidies it receives through a tax called CSPE paid by consumers.
Last week, Fitch revised its credit rating outlook for EDF to negative from stable on worries about the utility's debt and the assumption that tariff increases would be insufficient. (Additional reporting by Benjamin Mallet and Muriel Boselli; Editing by Eric Walsh and Mark Potter)