EU backs bank rescues, Denmark to inject capital

* EU says France improves terms of bank aid plan

* France says to pay first aid tranche in days

* Denmark to inject capital into banks

(Adds comments from Elysee Palace and source close to Lagarde)

By Mark John and Bate Felix

BRUSSELS (Reuters) - The European Commission approved France's bank rescue scheme on Monday and said it expected similar deals with Germany, Austria and others in coming days, signalling an end to a weeks-long standoff with governments.

The Commission decision came as Denmark became the latest country to announce support for its banks aimed at allaying the worst credit crunch since the Great Depression, but said it was not considering any move to nationalise financial institutions.

Sweden said the new guidelines from the EU executive on how authorities should tailor aid to banks, intended to avoid further wrangling with governments, went some way in the effort to bolster the financial sector but were still insufficient. [nSAT005922]

EU Competition Commissioner Neelie Kroes said she had not compromised strict EU aid rules under political pressure, saying France had tightened the terms under which banks must pay back aid and stressing Germany needed to make "minor changes" to secure approval for support to Commerzbank (CBKG.DE). [nL8734165]

"You will see that as far as state aid rules are concerned, no concessions have been made," she told a news conference.

The Commission also said it expected shortly to ease rules for state aid in general -- notably by increasing the threshold under which it had to be notified of such schemes.

REAL ECONOMY PLEDGE

A major bone of contention has been the rate at which fundamentally healthy banks caught up in the credit crunch would be made to pay for any state aid, with the Commission demanding higher rates than those proposed by national governments.

Details of the agreement with Paris showed a compromise after weeks of haggling over the terms of the support, with the Commission saying the repayment rate would be fixed for the first five years and be variable afterwards.

"The remuneration, which will average about 8 percent, will reflect the degree of solvency of each beneficiary bank," the Commission said in a statement.

Eight percent was in line with the rate sought by Paris. In return, the Commission said France had offered improved incentives for the early repayment of state capital and extra safeguards to ensure bank lending went to the real economy.

Kroes said the plan gelled with Commission guidelines under which state capital injections should be priced at central bank base rates plus a premium reflecting the riskiness of each case.

"I also expect that Germany will be requesting an adjustment of their national scheme, which should accommodate an agreed solution as regards Commerzbank," she said, adding Austria too could expect a green light for its national scheme.

The French scheme is expected to apply across the spectrum of its banking sector, taking in majors such as BNP (BNPP.PA), Societe General (SOGN.PA) and Credit Agricole (CAGR.PA).

The Elysee Palace said President Nicolas Sarkozy welcomed the EU approval and a source close to the matter said payment of the first 10.5 billion euros would take place on Thursday.

As the Commission approval puts an initial ceiling of 21 billion euros on aid, France would have to make a new request for any further aid that went above that, a source close to French Finance Minister Christine Lagarde said.

French banks will not be allowed to buy back shares apart from for staff stock schemes until they have repaid hybrid loans as part of a recapitalisation plan, the source said.

Moreover, banks would be encouraged to repay loans earlier as they will face higher repayments from the second year.

"SMALL STEP FORWARD"

In Copenhagen, authorities said they would step in after central bank governor Nils Bernstein warned some banks were finding it almost impossible to obtain new financing because of the turmoil on international markets.

"The government is looking into how a capital injection from the state can strengthen the capital base of Danish financial institutions," Minister of Economic and Business Affairs Lene Espersen told a bankers' conference.

Espersen told Reuters the size of the package could extend to a "considerable double-digit number in billion crowns, but not triple digits" and that the aim was to pass the plan in parliament in January.

Kroes, rejecting a welter of criticism that the EU had been slow to take decisions on bank support schemes judged vital to unblocking Europe's recession-hit economy, said other national schemes would likely be approved shortly.

She also revised bank aid guidelines that she insisted remained compatible with general EU rules on state aid.

Key principles included a requirement that the remuneration rate increase over time to encourage an early exit by the state, and that aid to banks facing insolvency risks be conditioned on restructuring such as a change of management.

"It is a small step forward," Swedish Finance Minister Anders Borg told Reuters. "But it is clearly insufficient if we are to reestablish stability in the financial system."

Sweden has offered state guarantees for new borrowing of up to 1.5 trillion Swedish crowns ($182 billion) in return for a fee, but so far only Swedbank (SWEDa.ST) among its four major lenders has joined the programme.

(Additional reporting by Peter Levring in Copenhagen and Daniel Dickson in Stockholm; Matthieu Protard and Julien Ponthus in Paris; Editing by Dale Hudson, David Holmes and Andrew Macdonald)