Germany backs law to protect firms from foreigners

BERLIN, Aug 20 (Reuters) - Germany's cabinet agreed on Wednesday to bring in rules to protect domestic firms from foreign buyers, notably sovereign wealth funds (SWFs), who could exert political influence, a German government official said.

Under the new rules, the government will be able to review and veto purchases of stakes of 25 percent or more in German firms made by buyers outside the EU or European Free Trade Association if it deems German security is at risk.

The rules, to stop cash-rich SWFs from countries including Russia, China and Gulf states exerting leverage in strategic sectors, extend the law -- which currently applies only to the arms industry -- to all sectors.

SWFs control an estimated $3 trillion in assets globally.

Economists and some industry groups have warned that any signs the government of the world's No.1 goods exporter is taking steps which could be viewed by markets as protectionist may frighten off foreign investors.

The government has stressed it would intervene only in exceptional cases.

The Economy Ministry will be able to look at a purchase up to three months after the acquisition is made or the intention to make an acquisition is made public. It then has two months to decide whether to veto the purchase.

Parliament still has to pass the plans. For a factbox on the rules, please click on [ID:nLJ374737] (Reporting by Madeline Chambers; Editing by Louise Ireland)