BRUSSELS (Reuters) - A row over a U.S. decision to bar Iraq war opponents from reconstruction contracts spilled over into a European summit on Friday as officials questioned the wisdom of Washington's move before key debt talks.

Countries that will lose out because of Washington's decision strongly criticized the move in the corridors of a European Union summit and officials said the controversy would probably be discussed later by the leaders.

At the same time, the leaders approved a statement voicing support for Iraqi reconstruction and stressing the importance of good transatlantic relations, which have been shaken by a rift over the Iraq war and trade disputes.

"I don't think the U.S. position (on contracts) is sustainable. It goes against international rules," Swedish Prime Minister Goran Persson told reporters.

Swedish Foreign Minister Laila Freivalds added: "It is completely unacceptable that the United States limits this to certain countries and completely shuts out others from the possibility of competing in a normal way for the contracts."

She said the issue had not been discussed yet at the summit but said it was certain to come up.

However, Prime Minister Tony Blair of Britain, a staunch U.S. ally which stands to benefit from Iraqi contracts, defended President Bush's decision.

"It's for the Americans to decide how they spend their money. This is American money," Blair told reporters.

Other officials said the decision was unwise when several of the leading war critics, including France, Germany and Russia, were among big creditors of Iraq whose help Washington needs in its drive to reduce Iraq's debt.

The German government said on Friday it was optimistic the row could be resolved.

"No decisions have been made yet and we should wait to see what the results are of the meetings with James Baker," said government spokesman Thomas Steg, referring to the former Secretary of State who will visit Europe next week.

BAKER MISSION

The White House is dispatching presidential envoy Baker to Europe next week to seek the help of France, Germany and Russia, plus that of Britain and Italy, in relieving Iraq's crushing $125 billion debt.

"I think that we will find a reasonable solution," Steg said of Baker's visit to Berlin on Wednesday. He added the talks would not be limited to the question of Iraq's foreign debt.

European Commission President Romano Prodi told a news conference: "It does not help the relationship, most of all on the eve of a meeting that was meant to take a decision on Iraq debt as many of these countries excluded are large creditors."

European Commission spokeswoman Emma Udwin said the EU had made a larger than expected contribution to Iraqi reconstruction at a recent donors' conference in Madrid.

"We do hope we will be able to get over this (contract issue) and be able to cooperate because we all have a stake in the creation of a democratic and stable Iraq," she said.

In a statement approved on the first morning of the summit, EU leaders said Iraq's stability was a shared interest and reiterated the Union's commitment to supporting its political and economic reconstruction, within the framework of U.N. Security Council resolutions.