* Only incident is scuffle over NATO banner
* Mood at downtown rally mostly festive, few arrests (Adds scuffle between police, protesters)
By Ann Saphir and Mary Wisniewski
CHICAGO, May 18 (Reuters) - Thousands of people protested loudly but peacefully under the watchful eye of police at a downtown Chicago plaza on Friday, chanting mostly about economic issues that have little to do with the summit of the NATO military alliance this weekend.
Police estimated about 2,500 people took part in the largest protest so far in a week of demonstrations before President Barack Obama and representatives from some 60 countries arrive for the two-day summit to discuss the war in Afghanistan and other international security issues.
The only incident was a minor scuffle between police and protesters when a man climbed a bridge tower to rip down a banner advertising the NATO summit.
“Wake up! Wake up! We want freedom, freedom! Tell those dirty-assed bankers we don’t need ‘em, need ‘em!” protesters chanted, stressing a theme of opposition to big banks that has been championed by the Anti-Wall Street Occupy movement.
Some 150 blue-uniformed Chicago police officers ringed the square, named after former Mayor Richard J. Daley, who was in office during bloody clashes between police and anti-Vietnam War protesters at the 1968 Democratic convention in Chicago.
Political activist Tom Hayden, who was among the leaders of the 1968 anti-war protests, spoke to the rally, reminding the demonstrators of the incident, which has remained a stain on Chicago’s reputation.
“It’s been 44 years since I had a permit to speak in Chicago,” Hayden said.
Thousands of security personnel are deployed to protect the summit, to be held at a convention center near Lake Michigan which has been surrounded by high fences. The FBI has said there was no indication of threats of terrorism, although they were on high alert.
The mood was mostly festive on Friday, with groups of nurses dressed in red dancing and singing on a sunny warm day. A few young protesters shouted at police, who did not respond.
One man who jumped a barricade surrounding a large metal sculpture by Pablo Picasso and had the words “kill” scrawled on one cheek and “cops” on the other yelled epithets at police, who appeared unmoved.
“We’re not trying to provoke the police. We don’t want trouble. But if they push us we’re ready to respond,” said a young man in a skull mask and black hoodie, who gave his name as Damien.
‘ROBIN HOOD’ TAX
The nurses called for what they term a “Robin Hood” tax on financial institutions’ transactions to offset government funding cuts that have affected healthcare, education and social services. Many sported green hats and masks.
“What we want to say is our priorities are upside down and we need to make sure we focus on our communities,” said Deborah Burger, speaking on behalf of the nurses.
The protest coincides with Friday’s start of the Group of Eight economic summit, which was originally due to take place in Chicago but was moved to the presidential retreat at Camp David, Maryland. The G-8 is grappling with a worsening economic crisis in Europe that could drag down the global economy.
The largest planned protest was expected on Sunday in Chicago, when the two-day NATO summit begins.
Police said a dozen people have been arrested so far, mostly for trespassing. One man was arrested for battery against a police officer.
Volunteer lawyers representing the protesters said police raided a Chicago apartment building earlier this week and took away nine protesters. Four of them were released on Friday but the five others have yet to be charged, said National Lawyers Guild defense lawyer Sarah Belsomino.
One of the four, Darrin Annussek, 36, said he was handcuffed in a police interrogation room for 18 hours, not allowed to go to the bathroom, and was never questioned. Police declined to comment on the allegations.
Military aircraft conducted exercises on Friday over the city in preparation for the summit, in case planes needed to be intercepted in a “no fly” zone above the summit, a spokesman for the North American Aerospace Defense Command said. (Additional reporting by Nick Carey, Eric Johnson and Kyle Peterson; Writing by Andrew Stern; Editing by Greg McCune and David Storey)