UPDATE 2-Fiat backs off demands for car incentives

* Fiat CEO: Would fully agree with non-renewal of incentives

* Fiat CEO: There is need for serious industrial policy

* Fiat does not seem interested in incentives - Berlusconi

(Recasts, adds comments by Fiat CEO)

ROME/MILAN, Feb 4 (Reuters) - Fiat said it would accept any government decision not to renew Italian incentives to buy new cars, which has become a bargaining chip in a political row over plans to close a Sicilian car factory.

"Now there is a need not to ease the market's pain but for strong and serious industrial policy with the goal of strengthening competition in the auto industry," the Italian carmaker's chief executive said in a statement on Thursday.

Previously, Marchionne had called for a gradual decrease of incentives to prevent a drop in demand when tax breaks for new car buyers end. Fiat has said it could post flat trading profit this year without incentives.

But the government has indicated a renewal of incentives could hinge on Fiat's plans to move jobs to Italy from abroad in exchange for the planned closure of its loss-making Sicilian factory at Termini Imerese.

Senate Speaker Renato Schifani said on Thursday the government did not have to renew incentives without a guarantee jobs will be safeguarded, especially at Termini.

"We have to have the courage to say that there have been enough government handouts if they do not safeguard jobs and industrial sites," Schifani said.

HORSE TRADING

Fiat has been discussing plant closures and output targets with the government. Workers staged a 4-hour strike at Termini and other Fiat factories on Wednesday.

Last week, a Fiat union source told Reuters the government had received seven proposals for Termini, providing hope for workers there. No details of the proposals nor the parties involved are known.

Fiat has offered to move Panda production to Pomigliano, Italy, from Poland in return for shutting Termini. A source told Reuters last week the government may be willing to offer incentives in exchange for the transfer of jobs to Italy.

Fiat also plans to suspend work at all its Italian plants for two weeks from Feb. 22 to offset lower demand, which the government has said would make talks on incentives tough.

Prime Minister Silvio Berlusconi said the government was looking at the possibility of renewing incentives but: "Fiat does not seem interested".

According to a report in Il Giornale newspaper, industry minister Claudio Scajola and economy minister Giulio Tremonti will meet on Thursday to discuss incentives for the car sector.

Fiat shares closed down 0.6 percent. (Reporting by Philip Pullella and Maria Sheahan; Editing by Dan Lalor) ($1 = 0.7207 euro)