UPDATE 1-Rich countries turn to IMF to monitor wealth funds

(Adds French minister's comments)

By Emily Kaiser

WASHINGTON, Oct 20 (Reuters) - The world's rich nations seem content to let the International Monetary Fund and its cohorts sort out how to oversee a growing group of wealthy and secretive state-controlled investment funds.

A dinner meeting on Friday with Group of Seven finance chiefs and countries such as China and Kuwait that control large funds yielded no new pronouncements as the two sides consider how to encourage cross-border investment without jeopardizing national security -- or pride.

G7 sources said the discussion sounded more like a sales pitch than a heated debate. Countries holding big funds were eager to dispel concerns they would disrupt world markets, while developed nations tried to show they were open to fair investment.

U.S. Treasury Secretary Henry Paulson called the dinner "an important initial step in the process of developing consensus and collaboration around this important issue," and said the IMF was uniquely positioned to monitor and advise the funds.

French Economy Minister Christine Lagarde said she left the dinner session with "a better comprehension of the apprehensions on both sides of the table." She said wealth funds were keen to have clearer idea of which sectors they could invest in without attracting a hostile reaction.

With more than $2 trillion in assets and billions more pouring in every week, these funds are playing an increasingly powerful role in global financial markets, yet they carefully guard their investment strategies, which makes some developed countries uneasy.

The wealth funds have been around for more than 50 years, and are most commonly used to invest surplus reserves to benefit future generations. The biggest include oil exporters like Kuwait and Norway, as well as newer entrants such as China, which just launched a $200 billion fund to invest part of its massive trade surplus.