* Meeting in Rome to discuss unfreezing assets
* Libyan rebels have 40 pct of funds needed for April/May
* Handing Libyan assets to rebels complicated - experts
By Deepa Babington
BENGHAZI, Libya, April 29 (Reuters) - The international community must unfreeze Libyan assets abroad urgently to prevent rebels fighting Muammar Gaddafi from running out of funds, Italy’s envoy to rebel-held eastern Libya said on Friday.
Libya’s interim national council has estimated it has only about 40 percent of funds needed to cover its budget for April and May, Guido De Sanctis, Italy’s representative to the rebel stronghold of Benghazi said.
Libyan assets abroad were frozen after Gaddafi’s brutal crackdown on protesters against his four-decade rule.
But Western officials and experts say any attempt to unfreeze them and hand them to the rebels will be complicated and could face legal obstacles that could take years to clear.
Fears over how long the rebels, who rose up against Gaddafi’s rule in February, can keep up military operations and pay salaries for public workers have risen as the conflict enters its third month and has reached stalemate.
“This is an extremely urgent issue to resolve,” De Sanctis told Reuters, referring to the freeing up of Libyan assets.
The issue will be among those discussed at a meeting of Western and Middle Eastern states in Rome next month, which is also expected to seek ways of allowing oil from Libya’s east to be sold on world markets.
Though a broad agreement on unfreezing assets needs to be reached, it may have to be ultimately pushed through by groups of countries with close business ties to Libya, De Sanctis said.
Italy, Gaddafi’s closest Western ally before it recognized the rebel national council, froze Libya’s stakes in bank UniCredit and other Italian companies last month as part of European Union sanctions.
The United States has frozen more than $34 billion in Libyan assets.
France said earlier this month it supports unfreezing Libyan assets abroad to help the rebels.
Libya’s former colonial ruler, Italy has also joined the NATO-led air campaign against Gaddafi’s forces and provided bases and aircraft to support the rebels.
Italy’s embassy in Tripoli was ransacked this week by Gaddafi supporters who took down the Italian flag and raised the Libyan flag over the building, De Sanctis said.
As well as securing funds, Libya’s opposition needs to quickly establish a fully-functioning administration to ensure it does not lose public support as the conflict wears on, De Sanctis said.
An Italian business group that visited Benghazi said urgent improvements needed to be made to the electronics systems for air traffic control and the city’s port to revive business links, he said. (Editing by Sami Aboudi in Cairo and Janet Lawrence)