WRAPUP 1-Greece softens tone as regulators question CDS ban

* UK's FSA: wrong to rush into CDS market changes

* FSA stance echoes scepticism from Germany's BaFin

* Bank of France's Noyer: ban would push trading elsewhere

* Greek PM: not scapegoating speculators for debt problem

* France, Germany: agree on need to curb extreme speculation

By Huw Jones and Lesley Wroughton

LONDON/WASHINGTON, March 10 (Reuters) - Moves to ban some types of credit default swap trading lost momentum on Wednesday as Britain's top regulator said there was no case for emergency action and Greece toned down its attacks on speculators.

Greece, Germany, France and Luxembourg had called for speedy action to limit or even ban naked credit default swap (CDS) contracts, whereby the buyer has no stake in the underlying asset being insured against default.

European Union finance ministers will discuss possible action in the CDS market on March 16 after the bloc's executive said on Tuesday it would consider a ban on naked selling. [ID:nLDE6282BZ]

"We need to think about it ... clearly but ... it is not the key driver of what has gone on with perceptions of Greek risk," UK FSA Chairman, Adair Turner, told reporters.

"It would be wrong to rush into ... (taking) immediate action and deal with it. We are trying to take that issue and think it through in a rounded fashion."

Greece has blamed naked CDS contracts on its sovereign debt for amplifying its bond market woes as it grapples with a huge budget deficit.

But the country's prime minister appeared to tone down the rhetoric on Wednesday, saying he was working to get Greece's house in order and not trying to "scapegoat" its fiscal problems by blaming market speculators. [ID:nN10141048]

"We want to make sure that since we're doing what we have to do, we want to make sure this has the most positive impact and we don't have forces working against us," George Papandreou told U.S.-based reporters at the Center for American Progress.

Germany's financial watchdog, BaFin, which investigated hedge funds involvement with the country, said this week it had found nothing to prove widespread speculation in Greek bonds. [ID:nWEB4460]

Analysts and hedge funds dispute that CDS markets can determine moves in the much larger sovereign debt sector, arguing that CDS values are a useful health check. [ID:nLDE6231ZK]

MORE TRANSPARENCY

Bank of France Governor Christian Noyer said the credit default swaps market needs more transparency and should be supervised by local central banks but he stopped short of urging more draconian measures. [ID:nLDE629281]

"In general, I do not favour prohibiting this or that market instrument because the speculation would then shift to another instrument or onto the debt itself," Noyer said in remarks to be published by French magazine Agefi on Thursday.

Still, French Prime Minister, Francois Fillon, said in Berlin that he and Germany agreed on the need to curb extreme speculation in markets.

London and New York are the world's main derivatives trading centres and effective curbs in the EU would need Britain and the United States to take part.

A U.S. official said on Tuesday that Greece's central task should be to restore fiscal stability.

The FSA's Turner suggested thrashing out a practical framework for curbs would be difficult.

It was tricky to decide on the motives of someone who, for instance, holds a naked short position on Greek debt and a long position on Greek banks.

"You can have significant volatility in credit spreads of a sovereign even if no CDS market existed. There is a danger of an over-simplistic belief that everything going on is shorting in the CDS market," Turner said.

The EU is already set to propose a draft law in the summer to boost central clearing, transparency and trade reporting in the whole derivatives market and may address CDS abuse issues in a review of its market abuse rules later in the year.

(Additional reporting by John O'Donnell in Brussels, Tamora Vidaillet in Paris, James MacKenzie in Berlin; editing by Ron Askew, Toby Chopra, John Stonestreet)