UPDATE 1-EU offers Pakistan aid but no trade breaks

* EU to aid people displaced by fighting with militants

* Pakistan says needs trade concessions not aid

* Concern mounting about security in nuclear-armed Pakistan

BRUSSELS, June 17 - The European Union pledged aid on Wednesday to people fleeing fighting between the Pakistan army and Taliban militants but denied Pakistan the trade breaks it says will help it win the struggle.

At a first EU-Pakistan summit, the EU executive said it would provide 20 million euros ($27.72 million) to help people from the Swat valley combat zone and would ask EU states to provide a further 45 million euros from a reserve fund.

But a push by some EU states to offer Pakistan significant trade concessions was blocked by others concerned about the effect on their domestic industries.

A joint EU-Pakistan statement showed that while the EU offered the prospect of a long-term free trade agreement, there would be no immediate trade incentives such as eliminating tariffs on Pakistani imports such as clothes and bed linen.

"I am looking for MOUs (memorandums of understanding), not IOUs, and I intend to get them," Pakistan's President Asif Ali Zardari said ahead of the meeting, saying trade concessions were more important than aid.

But afterwards he said he was pleased with the support Pakistan was getting from Europe and elsewhere.

"No relationship ... starts in one day," he told a news conference. "The fact that there is a commitment and an appetite to help Pakistan, I am very satisfied with."

The 27-country EU and the United States want better ties with nuclear-armed Pakistan because of concern about the spread of Islamic militancy there and fears that nuclear weapons could fall into the hands of militants.

The Swat operation is in its last stages, but more than 2 million people have already fled the combat zone since fighting broke out in late April.

IMMEDIATE TRADE

European Commission President Jose Manuel Barroso said Islamabad needed measures to diversify exports and attract investment and Brussels would be "very pragmatic" in looking at options, including preferential access schemes.

"We are ready to work with Pakistani authorities to find some concrete ways ... to achieve a greater access to our market," he told the news conference.

But he stressed that some steps needed backing of all members of the World Trade Organisation, which did not seem likely. Pakistan's neighbour and rival India had been opposed to any preferential steps for Islamabad.

An EU diplomat said some EU states, including Britain and Sweden, wanted to offer Pakistan more than just the prospect of a free trade agreement that would take years to negotiate.

A draft text circulated among EU trade officials last month proposed eliminating duties on imports of seven key textile and clothing products from Pakistan pending any free trade agreement, which could take up to 10 years to implement.

"Other countries, such as Italy and Spain, want to send a positive signal with this FTA, but secure in the knowledge that this will take so long to achieve there is no threat to their own industries in what is a time of economic crisis," the diplomat said.

Annual trade between the EU and Pakistan is about 10 billion euros in imports and exports and trade flows between the two partners has grown by around 10 percent since 2003. (Writing by David Brunnstrom) (david.brunnstrom@thomsonreuters.com; +32 2 287 6839; Reuters Messaging: david.brunnstrom.reuters.com@reuters.net))