* British-style protests could spread

* Italy should spend more on stimulus

By Stephen Brown and Francesca Piscioneri ROME, Feb 5 (Reuters) - The leader of Italy's largest trade union has warned that labour disputes over use of foreign workers like the strikes in Britain could spread and even become racist.

Guglielmo Epifani of the General Confederation of Italian Workers (CGIL) saw risk of a similar backlash in Italy against foreigners who are employed in large numbers in building, seasonal farm labour, steelworks and care work.

And he urged the Italian government to spend more on stimulating the economy than the 5 billion euros currently being offered.

Epifani said workers and governments might be tempted to respond to the recession with "protectionism and nationalism" to defend jobs, which could hinder growth and foster unemployment.

"I understand it (the British strike), but I think we have to be careful, because if unemployment is used against workers from other countries -- never mind if they are Italian or not -- this is a very delicate issue," Epifani told Reuters.

"It would mean Italians could only work in Italy, English in England and the French in France," the left-wing Italian union leader said in an interview late on Wednesday.

With unemployment in Britain surging towards two million, the dispute over the use of Italian and Portuguese workers at a refinery has sparked a debate on EU laws on labour mobility.

SPEND SOMETHING

The International Labour Organisation estimates up to 51 million jobs worldwide could disappear by the end of 2009 and in Italy the main industry lobby estimates 600,000 jobs could go.

"There's no problem while there are jobs to go round, but once jobs go you get conflicts between Italian and immigrant workers and between first and second generation immigrants," said Epifani.

The CGIL, which in the absence of strong opposition to Prime Minister Silvio Berlusconi seems to be leading the centre left, has 5.5 million members, more than half of whom are pensioners.

On the 5 billion euros of stimulus offered by the government, Epifani said: "I am not asking Italy to spend like other countries. I am asking them to spend something."

He defined the top priorities as support for those made unemployed, aid for key industry sectors and the recapitalisation of Italy's banks.

Pointing out that Italy is one of the only EU nations not to provide income support for the long-term unemployed, Epifani urged Berlusconi to make good on commitments to provide 8 billion euros of new funding for welfare protection. (Additional reporting by Gavin Jones)

(Editing by Richard Balmforth)

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