* New roads may help reduce cost of produce, inflation
* EU resumes aid after delays over Rwanda rebel allegations
KIGALI Oct 4 The European Union has given Rwanda 40 million euros ($54 million) to improve roads to help foodstuffs get to market, the EU and Rwanda said on Friday.
International lenders, including the EU, had delayed aid to Kigali last year over Rwanda's alleged backing of rebels in the neighbouring Democratic Republic of Congo, which the government of President Paul Kagame denies.
However, some donors have said Rwanda is taking the right steps by taking part in a peace process involving talks between Congo and the rebels, which have been hosted in neighbouring Uganda. Rwanda says aid flows, which had accounted for 40 percent of its budget, are now picking up again.
"All donors are on board," Finance Minister Claver Gatete said. "Last year there was a shock from the aid delays. What these shocks have shown us is that there is resilience of the economy."
The EU has traditionally been a major source of financing for transport infrastructure in the region, and lent Uganda $150 million this week to help pay for roads to boost regional trade.
The head of the EU delegation to Rwanda, Michel Arrion, said the 40 million euros would help to improve 700 km (430 miles) of roads in Rwanda's more isolated areas:
"An improved network of feed roads will reduce transport costs and have an immediate effect on food security in Rwanda."
It could also help reduce the cost of produce in the markets, and help ease Rwanda's urban inflation which rose to 4.04 percent in the year to August from 3.52 percent in the previous month.
The International Monetary Fund has said the Rwandan economy is likely to improve in the second half of the year owing to the release of some delayed lending.
But the United States on Thursday said it would block military assistance to five countries including Rwanda over their use of child soldiers in armed conflicts.
The top U.S. diplomat for Africa, Thomas Greenfield, said Rwanda had been denied a waiver because of its role backing rebels in Congo. (Reporting by Jenny Clover; Writing by James Macharia; Editing by Kevin Liffey)