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UPDATE 1-Lactalis extends baby product recall after finding contamination source

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* Further 720 batches being recalled

* Concerns products made at Craon factory (Adds detail)

PARIS, Dec 21 (Reuters) - Dairy giant Lactalis announced on Thursday a further recall of baby food products after establishing a source of contamination at a French factory which has been linked to cases of salmonella bacteria.

Lactalis said it was recalling as a precaution all infant formula and other baby food products made at its factory in Craon, northwest France, since Feb. 15, which would represent 720 batches in addition to more than 600 batches already concerned by recent withdrawals.

The latest recall affected products destined for both French and overseas markets carrying the Picot, Milumel and Taranis brands, Lactalis said in a statement.

Products supplied by the Craon plant are suspected of being linked to recent cases of salmonella infection among infants in France.

After an initial recall at the start of this month, checks by Lactalis did not indicate any contamination. But the discovery of more cases of salmonella then led it to halt production at the Craon plant.

Lactalis said further tests had shown that contamination occurred at Craon following work in the first half of the year.

It did not indicate the type of contamination detected.

Privately held Lactalis is one of the world's largest dairy companies, reporting annual sales of around 17 billion euros ($20.2 billion).

It has been expanding its infant nutrition activity although its biggest categories are cheese and liquid milk.

($1 = 0.8422 euros) (Reporting by Gus Trompiz and Gwenaelle Barzic; Editing by Mathieu Rosemain/Sudip Kar-Gupta)