(Adding background, details)
By Paul Day
MADRID, April 23 (Reuters) - The Spanish government is studying the creation of a fund to aid banks struggling with the collapse of the property sector, Spain's Economy Minister Elena Salgado said on Thursday.
"We are studying this possibility and since we are still studying it there is nothing solid on the table," Salgado said when asked about the possibility of a fund being created.
The new economy minister, who took over at the beginning of April, said the government is in talks with legislators on emergency instruments to be used after the privately-financed deposit guarantee fund, worth around 7 billion euros ($9.12 billion), was exhausted.
Authorities have already moved to bail out one of Spain's savings banks, which are largely unlisted and the most exposed to the property downturn. The government will guarantee up to 9 billion euros in funds to restore Caja Castilla la Mancha (CCM) to health, although it hopes the cost will be a fraction of that.
But Credit Suisse has estimated that it will cost up to 60 billion euros over to one to two years to bail out savings banks alone.
On Wednesday, Salgado said the government would restructure its banking system amid warnings by the savings bank association of "catastrophic" risks without contingency plans.
Spain's banks have so far largely avoided writedowns due to their limited exposure to toxic assets, though the economic downturn has lead to a steep deterioration in credit quality.
Spanish banks have also complained that bank bailouts in other countries have left them at a competitive disadvantage.
ROOM TO SPEND
Salgado reiterated the government had room to increase spending if needed.
"We have made an extraordinary fiscal effort to fight the crisis ... and there is still margin for more. But we must redirect ourselves toward the stability pact by 2012, so we should be extremely careful with these measures," Salgado said.
The European stability pact calls on member states to keep public deficits below 3 percent of gross domestic product. The Bank of Spain expects Spain's deficit to rise to 8.3 percent by the end of 2009.
Salgado was appointed to replace former Economy Minister Pedro Solbes, who had warned there was no room to further boost spending on top of the existing 70 billion euros in stimulus and assistance to banks.
On whether the government would consider revising its economic forecasts, which are considerably more optimistic than those calculated by the Bank of Spain and the International Monetary Fund, Salgado said official predictions would be reviewed in a few months.
The IMF said on Wednesday it expects the Spanish economy to contract by 3 percent in 2009, in line with the Bank of Spain's forecasts and compared to the government's own prediction of -1.6 percent. (Reporting by Paul Day; Editing by Toby Chopra)