UPDATE 1-France, Britain set to spar over sovereign funds

(Adds German comment)

By Huw Jones

BRUSSELS, March 3 (Reuters) - France and Britain differ over whether the European Union needs its own response to sovereign wealth funds as well as a globally agreed industry code of conduct, an EU diplomat said on Monday.

The bloc's finance ministers will discuss on Tuesday the role of state-backed funds that invest about $2.5 trillion built on their booming commodity and energy exports.

The EU's executive European Commission said last week that legislation was not needed and put forward principles it wants included in a voluntary code of conduct being drawn up by the International Monetary Fund.

"The British are fairly wedded to seeking an international solution. The French would like more intervention at EU level to clarify provisions available in the EU treaty," the diplomat said.

France wants to clarify how rulings by the European Court of Justice affect how EU countries can respond to SWFs, the diplomat said.

The EU's top court has ruled that investments from third countries should benefit to some extent from the bloc's rules on the free movement of capital or establishment.

German Finance Minister Peer Steinbrueck welcomed the Commission's policy paper on SWFs, saying it should be part of wider international initiatives.