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UPDATE 1-In blow to Italy, EU's Vestager appeals ruling over bank rescue

Francesco Guarascio

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BRUSSELS, May 29 (Reuters) - The European Commission appealed against an EU court ruling that ratified the rescue of a small Italian lender, in a move that pits the bloc's antitrust chief Margrethe Vestager against Italy's eurosceptic government.

The decision is a blow to Italian banks that were considering filing compensation claims against the Commission after the EU court verdict issued in March, which overturned an initial decision by Brussels to block the rescue of Tercas .

Vestager, a candidate for the presidency of the next commission, waited until after last week's European Parliament elections before announcing her decision to appeal the ruling, in what was seen as a move to avoid interfering with the vote.

Bank rescues are a sensitive issue in Italy, where an anti-establishment government has campaigned against EU "bail-in" rules that limit the use of public money to prop up ailing lenders.

EU antitrust regulators blocked the rescue of Tercas in 2015 because it was carried out with money from Italian deposit guarantee fund FITD.

Brussels considered the bailout in breach of EU state aid rules because it said the fund had acted on behalf of the Italian state, effectively providing unfair subsidies to the bank.

The EU General Court overturned that decision in March, ruling that the fund had acted independently.

After the verdict, the Italian banking association (ABI) urged the Commission to reimburse lenders and savers who lost money "due to the consequences of its wrong decisions".

Italian banking rescues after Tercas were carried out under less generous schemes, because of Brussels' rejection of that intervention. Tercas itself was subsequently salvaged under more onerous terms and sold to another bank.

The Italian government also said it was considering seeking compensation.

But the Commission's decision to appeal now paves the way for a long legal dispute which could prevent the Italian government from using the easier terms of the Tercas rescue for future bank bailouts.

Italy's government has recently not ruled out public help for Banca Carige, the latest in a series of bank crises in an economy still reeling from the effects of recession .

The EU executive said that in its appeal to the verdict it was seeking clarification from the court over the application of EU state aid rules in banking rescues, as the ruling "appears to depart from the standard established by the case law."

Separately, the European Commission wrote on Wednesday to the Italian government asking it to explain a deterioration in the country's public finances, a move that sets the stage for another possible legal clash with the eurosceptic coalition in Rome.

(Reporting by Francesco Guarascio zfraguarascio; editing by Philip Blenkinsop and John Stonestreet)