UPDATE 1-TARP money needed for banking system - White House

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WASHINGTON, Nov 24 (Reuters) - The U.S. government is dealing with an unprecedented financial crisis and money set aside to help the fragile banking system should be used for that purpose and not for bailing out U.S. automakers or other businesses, White House Spokesman Tony Fratto said on Monday.

Fratto said the federal government's move to help banking giant Citigroup Inc (C.N) was a "relatively unexpected effort" and shows how the money in the Troubled Asset Relief Program needed to be preserved to help the financial system.

"This is a very dynamic situation that we are dealing with, the financial system is still fragile," Fratto said. He added that there are signs that credit markets were beginning to respond to the government's efforts to get banks lending again. Fratto said officials were also seeing improvement in the balance sheets of some important banks.

On helping the auto industry, the White House backs a compromise plan that would use an existing $25 billion loan authority to help U.S. automakers survive the current financial crisis. That money was approved by Congress to help them retool factories to make more fuel efficient cars. Congressional Democrats prefer tapping into the TARP money to provide bridge loans to help U.S. auto companies avoid bankruptcy.

"We want to see the automakers succeed," Fratto said. "There seems to be some misconception out there that we don't want to help the automakers. We do want to help the automakers." (Reporting by Donna Smith and Matt Spetalnick, Editing by Chizu Nomiyama)