Cash-strapped Libyan rebels won a financial lifeline potentially worth billions of dollars from the United States and other allies on Thursday, as forces loyal to Muammar Gaddafi pounded rebel towns in the west.

US Secretary of State Hillary Clinton said Washington would seek to unlock some of the $30 billion of Libyan state funds frozen in the United States to help the rebel movement.

Italy, host of a meeting in Rome of the "contact group" on Libya, said a temporary special fund would be set up by allied nations to channel cash to the rebel administration in its eastern Libyan stronghold of Benghazi.   

Kuwait pledged $180 million to the fund, while Qatar promised $400-500 million, Qatar's prime minister said. France said it was evaluating its contribution to the fund, which should be operational within weeks.   

A rebel spokesman in Zintan, southwest of Tripoli, said pro-Gaddafi forces had fired about 50 Russian-made Grad rockets into the rebel-held town so far on Thursday.

As the fighting has generally descended into a stalemate, the rebel Transitional National Council (TNC) says it needs up to $3 billion to keep going in the coming months.

But efforts to unblock Libyan state assets frozen in overseas accounts or to allow the rebels to get past UN sanctions that prevent their selling oil on international markets have been held up so far.

Clinton said Washington hoped to change the law to allow it to use some of the more than $30 billion of frozen Libyan assets in the United States to help the Libyan people.

"I'm pleased to announce that the Obama Administration, working with Congress, has decided to pursue legislation that would enable the US to tap some portion of those assets owned by Gaddafi and the Libyan government in the United States, so we can make those funds available to help the Libyan people," she said.

As ministers gathered in Rome, Clinton said: "We'll be discussing a financial mechanism, we'll be discussing other forms of aid."    

But there was a cautious response from Britain, which said it had no plans to contribute to the fund set up for the rebels because it had already made a "very substantial" contribution to humanitarian assistance.   

So far, the rebels have been recognised by France, Italy and Qatar. A rebel spokesman said on Thursday Denmark, Spain and the Netherlands had followed suit, but officials from those countries denied it.   

Thursday's meeting brings together foreign ministers from more than 20 countries including France, Britain, the United States, Italy and Qatar as well as representatives of the Arab League and the African Union.

Rebel spokesman Mahmoud Shammam told reporters the rebels only had enough funds to pay for their immediate needs in food, public salaries and medicine until the end of May. They needed $2-3 billion dollars in urgent funding, he said. - Reuters