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EU vows Pakistan aid, Zardari seeks trade breaks

* EU to aid people displaced by fighting with militants

* Pakistan says needs trade concessions not aid

* Concern mounting about security in nuclear-armed Pakistan

BRUSSELS, June 17 (Reuters) - The European Union pledged on Wednesday to give Islamabad millions of euros in humanitarian aid to help people displaced by fighting between Pakistan’s army and the Taliban.

President Asif Ali Zardari, in Brussels for the first summit between the EU and Islamabad, said he was certain Pakistan would win the struggle against Islamist militancy with the help of the world but that it needed trade concessions more than aid.

The EU will provide 20 million euros ($27.72 million) to help people who have fled the fighting in the Swat valley and the EU’s executive will ask member states to provide a further 45 million euros from a reserve fund, an EU official said.

“We stand by the people of Pakistan,” EU External Affairs Commissioner Benita Ferrero-Waldner told reporters.

But Zardari also called for trade concessions to boost Pakistan’s economy, which some EU states are reluctant to agree to despite concern about the dangers to Europe posed by militants in Pakistan.

“What I need is trade not aid. I am looking for MOUs (memorandums of understanding), not IOUs, and I intend to get them,” he said after a speech to NATO ambassadors in Brussels.

“I am an optimist at heart, not a pessimist, and I am always hopeful.”

Zardari said the battle against Taliban militancy in Pakistan had only just begun but the army was determined and “defeat is not an option for us”.

“I’m sure with the ... help of the world we will be able to fight the war and half the war is the minds of the people,” he said.

The 27-country EU and the United States want better ties with nuclear-armed Pakistan because of concern about the spread of Islamic militancy there and fears that its nuclear weapons could fall into the hands of militants.

Zardari has played down concerns about Pakistan’s nuclear arsenal falling into militant hands, saying officials from other governments were satisfied with the command and control system Pakistan has in place.

Draft conclusions prepared for the summit showed the EU would offer the possibility of a long-term free trade agreement (FTA), but no immediate trade incentives such as ending tariffs on goods imported from Pakistan such as clothes and bed linen.

“A number of nations such as Britain and Sweden want something now, rather than this long-term FTA which will take years to sort out,” an EU diplomat said.

“Other countries, such as Italy and Spain, want to send a positive signal with this FTA, but secure in the knowledge that this will take so long to achieve there is no threat to their own industries in what is a time of economic crisis.”

Annual trade between the EU and Pakistan is about 10 billion euros in imports and exports, a rise of about 10 percent since 2003. (Writing by David Brunnstrom; Editing by Jon Boyle) (; +32 2 287 6839; Reuters Messaging: ($1=.7214 Euro)