By David Brunnstrom

LUXEMBOURG, Oct 15 (Reuters) - European Union foreign ministers were set on Monday to tighten sanctions on military- ruled Myanmar in response to its bloody crackdown on protests last month, officials said.

Ministers were due to tighten existing sanctions and agree new steps targeting the country's key timber, metals and gemstone sectors, EU officials said.

Existing sanctions include visa bans and asset freezes on generals, government officials and their relatives, plus restrictions on investments in named state corporations.

"The latest events of the weekend have shown that, therefore (ministers) will decide to increase pressure on the regime by reinforcing our restrictive measures," EU Commissioner for External Relations Benita Ferrero-Waldner told a news briefing at a meeting of EU foreign ministers in Luxembourg.

However the bloc acknowledges that its trade and therefore economic leverage with Myanmar is limited.

Ferrero-Waldner said the steps were aimed at boosting efforts by U.N. special envoy Ibrahim Gambari, who was on a regional tour to drum up support for a coordinated front against the Myanmar junta.

However, in an opinion piece in the International Herald Tribune, French Foreign Minister Bernard Kouchner and British counterpart David Miliband said incentives were needed too.

"The EU needs to consider a package of positive measures to the Burmese people should the regime show its willingness to genuinely work for reconciliation," they wrote.

Miliband reiterated this message to reporters in Luxembourg:

"If they do that, there will be economic incentives and economic support for the people of Burma. If the regime refuses, then obviously there'll be further sanctions."

Ferrero-Waldner said she backed a delay in the imposition of the additional sanctions to support Gambari's mission.

"He is the only one who has a chance for leverage at the moment," she said. "I think he should have sticks and carrots in order to be able to work."

She said the EU wanted to see the release of political prisoners and the start of a process of dialogue with opponents.

Despite unprecedented international outrage at the crackdown, including a rare call for "restraint" from main ally China, the Myanmar junta has been cranking up the pressure on the domestic front.

At the weekend, it brought stage-managed government rallies to Yangon and police, still raiding homes more than two weeks after the demonstrations were crushed, also arrested Htay Kywe, a prominent student activist in an uprising in 1988 who had managed to evade capture for nearly two months.

Gambari told Myanmar on Monday to stop arresting dissidents even as the military junta vowed to plough on with its "roadmap to democracy" regardless of widespread international criticism.

Gambari called the continued arrests and intimidation of activists "extremely disturbing".

After Thailand, Gambari heads for Malaysia, India and China -- all of them trading partners of Myanmar so far opposed to any sanctions.

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