* FSA's Turner: don't overestimate Greek debt shortselling
* Turner: Short positions on Greek debt only 3-4 percent
* Citi bank: governments should put own finances in order
(Adds more detail, analyst comment, background)
By Huw Jones
LONDON, March 2 (Reuters) - Curbing short-selling on the cost of insuring Greek debt would not alone solve volatility, the chairman of Britain's Financial Services Authority said.
"It is important that even if we look at this issue we don't overstate it. A fundamental issue that can drive volatility on spreads on Greek bonds is a whole load of long investors not being willing to buy," Adair Turner told lawmakers on Tuesday.
"I believe the total amount of CDS short positions in the area of Greek problem debt is only 3-4 percent of outstanding Greek sovereign debt. The biggest driver is confidence levels and actions of long investors."
The bulk of trading in credit default swaps (CDS) in Europe is transacted in London.
Germany and France have called for a crackdown on what they see as speculators amplifying Greece's problem by shortselling CDS contracts based on the country's sovereign debt.
Jean-Claude Juncker, who heads the Eurogroup of finance ministers, warned on Monday of "torture equipment" which could be used against speculators in Greek debt. [nLDE6201RX]
"There are really open questions about whether you should be able to take out an insurance contract on something (in which) you don't have an insurance interest," Turner said.
But it was not clear how a crackdown could be implemented, he said.
DON'T BLAME THE MIRROR
Citi said the small volumes of sovereign CDS relative to underlying government bonds suggested that policymaker fears are misplaced and the focus should be on improving national finances.
"To us the negative focus on CDS has more to do with governments' reluctance to face their own problems than it has basis in reality," Citi added in a note to clients on Tuesday.
Some policymakers have suggested that buyers of CDS contracts should also have to acquire some of the underlying debt to avoid naked short selling.
Policymakers are already cracking down on derivatives markets generally, seen as too opaque and lightly regulated.
The G20 group of leading countries, which includes Britain, France and Germany, agreed last year that CDS contracts should be centrally cleared and reported in order to improve transparency.
(Reporting by Huw Jones; Editing by Ruth Pitchford)
((Reuters messaging: firstname.lastname@example.org; + 44 207 542 3326; email@example.com)) Keywords: BRITAIN FSA/GREECE
(C) Reuters 2010. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nLDE62118Z