ROME (Reuters) -Representatives of Credit Agricole have discussed with Italian government officials in recent weeks the conditions for a possible tie-up between the French bank's Italian unit and Banco BPM, two people close to the matter said.

Credit Agricole executives met with the Rome officials after the bank sought supervisory clearance in July to own up to 29.9% of Banco BPM and used derivative contracts to increase its holding to just above 20%, one of the people said.

Credit Agricole reassured the government it would be ready to provide the guarantees Rome deemed necessary to allow a tie-up between Credit Agricole Italy and Banco BPM, the person said.

A representative for Credit Agricole declined to comment.

Since escaping a takeover attempt by UniCredit in July, Banco BPM has said its merger options include a tie-up with the Italian arm of Credit Agricole, which is its biggest shareholder, or a combination with Monte dei Paschi di Siena, in which BPM owns a small stake.

Giving Credit Agricole a potential advantage, Monte dei Paschi is currently busy with an acquisition of Mediobanca which it clinched this month.

Italy has special powers it can use to vet deals involving assets considered of strategic national importance, including banks.

The government told the French lender that to approve a merger with Banco BPM it would require guarantees that credit continues flowing to the small businesses which are Banco BPM's core clients, the two sources said.

Rome would also seek guarantees regarding Anima Holding, a fund manager Banco BPM bought earlier this year, in order to protect domestic savings, one of the people added.

Economy Minister Giancarlo Giorgetti said last week that he had no "political objections" to a Banco BPM deal with Credit Agricole, but his ministry would apply the legislation designed to shield key assets - the so-called 'golden' powers - if it went ahead.