By Aziz El Yaakoubi SKHIRATE, Morocco (Reuters) - Libya's warring factions held United Nations-backed talks on Thursday in an effort to end a conflict between two rival governments that threatens to drive the country into full-blown civil war. Air strikes between rival forces intensified before Thursday's negotiations on Libya, where Western governments worry spreading chaos is allowing Islamist militants to gain ground in a threat to mainland Europe across the Mediterranean. The internationally recognised government and elected House of Representatives have had to operate out of the east of the north African oil state since an armed alliance known as Libya Dawn took over the capital Tripoli and set up its own self-declared government last year. Both centres of power are backed by heavily-armed alliances of former rebels who fought together to oust Muammar Gaddafi in 2011 but later fell out in a battle for control of oil wealth.

"When I say 'get rid of it', I mean put it into the good hands of the private sector", Osborne said in an interview with the FT. Osborne was not looking to follow a "Tell Sid"-type privatisation model for the sale of the taxpayer's stake in RBS, after rejecting this approach when the government sold Lloyds Banking Group Plc , the FT added. Osborne was referring to the "If you see Sid ... Tell him!" advertisements to promote the 1986 privatisation of British Gas. Royal Bank of Scotland is open to reduce the size of its investment bank as an attempt to increase the bank's value, the newspaper said.

Tunisian troops have captured a large arms cache near the border with Libya, including Kalashnikov rifles, rockets and landmines, the government said. Tunisia is waging a campaign against hardline Islamist groups who emerged after a 2011 uprising against autocrat Zine El-Abidine Ben Ali that put the North African country on track to democracy. "A large number of Kalashnikov assault rifles, rocket-propelled grenades, and explosives were seized in the southern city of Ben Guerdan," Interior Ministry spokesman Mohamed Ali Aroui said. Tunisia is worried that violence will spill over from neighbouring Libya, where Islamic State has expanded, exploiting widespread turmoil as two rival governments battle for control.