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* ArcelorMittal to invest 180 mln euros in Florange site
* Labour leaders says they were betrayed
By Julien Ponthus and Brian Love
PARIS, Nov 30 (Reuters) - The French government backed away on Friday from a threat to nationalise a steelworks, saying it secured promises from the owner, ArcelorMittal, to invest and avoid any forced layoffs at the site where the company has idled two blast furnaces.
Workers at the plant said the announcement fell well short of what they had hoped from a government that won power in May on promises to combat industrial decline and mass job losses in Europe's second-largest economy.
Prime Minister Jean-Marc Ayrault said ArcelorMittal, under fire for mothballing the site 18 months ago, would invest 180 million euros ($234 million) and had promised there would be no forced layoffs among some 630 workers there.
Ayrault said the two furnaces in Florange, a small town of some 11,000 people near the border with Germany, would not be restarted for now, given weak European steel demand.
ArcelorMittal would keep them in working order, however, for future use in a test project for environmentally friendly steel production.
"The government decided against the idea of a temporary nationalisation that was floated in recent days," Ayrault told reporters, three hours before a midnight deadline to strike a deal. "It ruled that option out given the commitments secured from ArcelorMittal."
Ayrault said the investment would reinforce cold-steel and packaging operations at Florange and secure jobs in those areas. ArcelorMittal had pledged its investment in Florange would not come at the expense of other sites in France.
The deal, the result of months of talks, came as the Italian Cabinet was meeting to approve a rescue plan for ILVA, Europe's largest steel plant, which has 20,000 workers and is threatened with closure after accusations that emissions from the site had caused an environmental "disaster."
Labour leaders from the Florange site responded angrily and vowed to fight on to make sure that what concessions had been wrung out of ArcelorMittal were respected.
"We've been betrayed," said Martin Edouard, a member of the CFDT union at the Florange furnaces, told reporters.
"This is unbelievable, if that's what politics is about, what a joke," said Walter Broccoli of the FO union.
The European steel industry is struggling with overcapacity at a time of recession in the euro area and cheap competition in emerging markets.
Florange, located in France's former industrial heartland, has become symbolic of the country's long industrial decline and a test case for whether Socialist President Francois Hollande can make good on a vow to reverse a relentless surge in unemployment.
ArcelorMittal said earlier this year the Florange site's two furnaces were not viable, but Hollande insisted they should be kept open and threatened a temporary state takeover of the site while the government sought a permanent buyer.
The two blast furnaces together employ about 630 out of the 2,700 workers at the entire site.
Ayrault offered no details on what workers would do beyond not being laid off, or a time frame for any future project to revamp the furnaces using European Union credits to produce environmentally friendly steel.
Hollande's government faced roars of criticism from business leaders this week over its threat to nationalise Florange.
Industry Minister Arnaud Montebourg, who shocked foreign investors this week by saying Arcelor's Indian chief executive, Lakshmi Mittal, was no longer welcome in France, had said the government had identified an industrialist ready to inject 400 million euros into the site.
Earlier on Friday, Montebourg huddled in a cafe with a group of orange-vested metal workers protesting near the Finance Ministry, telling them nationalisation was still an option.
Yet Hollande, who is battling to appease both left-wing voters angry at unemployment and foreign investors impatient to see structural reforms, is wary of the stigma even a temporary nationalisation would carry abroad.
Officials had defended the idea of a temporary nationalisation, saying it was a special case because ArcelorMittal had broken promises to keep the furnaces running.
But ArcelorMittal denies breaching commitments. Sources close to the group say Arcelor planned in 2003 - before its 2006 takeover by Mittal - to wind down inland blast furnaces in Europe, including the two in Florange, by 2010.
The group says overcapacity in Europe's steel market, with demand 28 percent below peak 2007 levels, has made Florange's furnaces uneconomical and that a buyer would have to absorb deep losses to take them on, even with the rest of the site.
Florange Mayor Philippe Tarillon relayed the extent of dismay with ArcelorMittal's boss, telling French media: "I understand the workers would have preferred to get rid of Mr Mittal. And I will share a secret with you. Me too."