By James Mackenzie and Lin Noueihed
ROME/TRIPOLI (Reuters) - Cash-strapped Libyan rebels won a financial lifeline potentially worth billions of dollars from the United States and other allies on Thursday, as forces loyal to Muammar Gaddafi pounded rebel towns in the west.
U.S. Secretary of State Hillary Clinton said Washington would seek to unlock some of the $30 billion (18 billion pounds) of Libyan state funds frozen in the United States to help the rebel movement.
Italy, host of a meeting in Rome of the "contact group" on Libya, said a temporary special fund would be set up by allied nations to channel cash to the rebel administration in its eastern Libyan stronghold of Benghazi.
Kuwait pledged $180 million to the fund, while Qatar promised $400-500 million, Qatar's prime minister said. France said it was evaluating its contribution to the fund, which should be operational within weeks.
A rebel spokesman in Zintan, southwest of Tripoli, said pro-Gaddafi forces had fired about 50 Russian-made Grad rockets into the rebel-held town so far on Thursday.
The spokesman, Abdulrahman, said the first salvo landed at about 6:45 a.m. (5:45 a.m. British time). He said NATO air strikes had destroyed at least two government helicopters near Zintan as they were being transported on trucks.
A Libyan man who fled the town of Nalut, near the border with Tunisia, said it was under bombardment.
Ayub, who left Nalut earlier on Thursday, told Reuters after crossing the border into Tunisia: "They are firing from a mountain about 10 km (6 miles) to the east of Nalut. They are firing Grads." This is the first time there have been reports of Nalut coming under bombardment.
Al Arabiya television, citing rebels, reported that NATO launched air strikes on Gaddafi forces in the oil town of Brega, in eastern Libya. It did not give details.
As the fighting has generally descended into a stalemate, the rebel Transitional National Council (TNC) says it needs up to $3 billion to keep going in the coming months.
But efforts to unblock Libyan state assets frozen in overseas accounts or to allow the rebels to get past U.N. sanctions that prevent their selling oil on international markets have been held up so far.
Clinton said Washington hoped to change the law to allow it to use some of the more than $30 billion of frozen Libyan assets in the United States to help the Libyan people.
"I'm pleased to announce that the Obama Administration, working with Congress, has decided to pursue legislation that would enable the U.S. to tap some portion of those assets owned by Gaddafi and the Libyan government in the United States, so we can make those funds available to help the Libyan people," she said.
As ministers gathered in Rome, Clinton said: "We'll be discussing a financial mechanism, we'll be discussing other forms of aid."
But there was a cautious response from Britain, which said it had no plans to contribute to the fund set up for the rebels because it had already made a "very substantial" contribution to humanitarian assistance.
So far, the rebels have been recognised by France, Italy and Qatar. A rebel spokesman said on Thursday Denmark, Spain and the Netherlands had followed suit, but officials from those countries denied it.
Thursday's meeting brings together foreign ministers from more than 20 countries including France, Britain, the United States, Italy and Qatar as well as representatives of the Arab League and the African Union.
Rebel spokesman Mahmoud Shammam told reporters the rebels only had enough funds to pay for their immediate needs in food, public salaries and medicine until the end of May. They needed $2-3 billion dollars in urgent funding, he said.
AIR STRIKES
The meeting is not expected to address military issues but ministers are likely to restate their confidence in the NATO mission, despite a lack of progress since the initial air strikes drove Gaddafi's forces away from Benghazi in March.
British Foreign Secretary William Hague said the pace of military action against Gaddafi's forces should be stepped up but this should not include arming the rebels.
Signs of impatience with the coalition's lack of coherence have emerged. French President Nicolas Sarkozy is planning a separate conference of the "friends of Libya" in the coming weeks to discuss the future of the country.
French Foreign Minister Alain Juppe said the group should include Russia and other countries.
Of particular concern is the fate of civilians in the surviving pockets of resistance to Gaddafi in cities in western Libya such as Misrata and Zintan.
An aid ship defied shelling by Gaddafi's forces to rescue more than 1,000 people from Misrata but was forced to leave behind hundreds of Libyans desperate to flee the fighting.
"The boat arrived safely this morning in Benghazi," International Organisation for Migration spokeswoman Jemini Pandya said on Thursday.
Misrata's port is a lifeline for the city, where food and medical supplies are low and snipers shoot from rooftops. In all about 13,000 people have been rescued by 13 ships.
The IOM hoped to carry out a further evacuation mission but this would depend on the security situation, Panyda said.
The insurgents trying to topple Gaddafi after 41 years in power had hoped for a swift victory, akin to the ousting of the leaders of neighbouring Egypt and Tunisia by popular uprisings.
But his better-equipped forces halted the rebels' westward advance from Benghazi and the front line is now largely static.
The United States, Britain and France, leading a NATO air campaign, say they will not stop until Gaddafi is toppled.
Britain said it had expelled two more Libyan diplomats from London because their activities were contrary to the interests of Britain. On Sunday, the Libyan ambassador was told to leave after the British government said its embassy in Tripoli had been attacked.
The attack on the British mission followed a NATO air raid on Tripoli that the Libyan government said had killed Gaddafi's youngest son and three of his grandchildren. Gaddafi has not been seen in public since then.
(Additional reporting by Arshad Mohammed and Sivia Aloisi; Stephanie Nebehay in Geneva, Tarek Amara and Abdelaziz Boumzar in Dehiba, Hamid Ould Ahmed in Algiers; Matt Robinson in Tunis; Joe Logan in Dubai; Mariam Karouny in Beirut; Jospeph Nasr in Berlin; Writing by Giles Elgood; Editing by Janet Lawrence)
