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UPDATE 1-US agency says RC2 to pay $1.25 mln civil penalty

* RC2 to pay fine over excess lead level in toys

* Fine involves Thomas & Friends Wooden Railway toys

* Says toys involved were recalled in 2007

Dec 29 (Reuters) - Toymaker RC2 Corp RCRC.O agreed to pay a $1.25 million civil penalty for an alleged violation of the federal lead paint ban, the U.S. Consumer Product Safety Commission (CPSC) said.

The penalty settlement resolved CPSC’s allegations that RC2 and one of its wholly-owned subsidiaries, Learning Curve Brands Inc, imported and sold Thomas & Friends Wooden Railway toys -- a RC2 product line -- with paints and surface coatings that contained lead levels above legal limits.

According to the federal lead paint ban, toys and other children’s articles are prohibited from having more than 0.009 percent lead in paints or surface coatings.

“RC2 failed to take adequate action to ensure that the toys would comply with the lead paint ban. This failure created a risk of lead poisoning and adverse health effects to children,” CPSC said in a statement.

RC2 had imported up to 1.5 million units of non-compliant Thomas & Friends Wooden Railway toys between January 2005 and June 2007, which were recalled in June 2007.

Additionally, the company which also sells products categories like John Deere, American Red Cross and Lamaze, imported up to 200,000 units of another five non-compliant toys of the same make between March 2003 and April 2007, which were recalled in September 2007.

Shares of the Oak Brook, Illinois-based company were trading flat at $14.83 Tuesday morning on Nasdaq. (Reporting by Shobhana Chadha in Bangalore; Editing by Unnikrishnan Nair)