* New restrictions baffle wheat traders
* Egypt is world's biggest importer
* Mixed signals from Egyptian authorities (Adds quotes, recasts)
By Eric Knecht and Maha El Dahan
CAIRO/ABU DHABI, Jan 26 (Reuters) - One Egyptian official's tough stance on wheat imports carrying a fungus that wreaked havoc in the Middle Ages is baffling global grain traders and putting a spotlight on policy-making disarray in the world's biggest purchaser of the commodity.
Alarm bells began ringing in Egypt when a 63,000 tonne wheat shipment from France arrived in December.
Traces of the ergot fungus were found, and even though they were within the permissible limits stipulated by the country's main state wheat buyer, the agriculture ministry warned that any level of the common fungus would be flatly rejected.
Since then, Egyptian authorities have sent mixed messages about their policy on the fungus.
The ministry of supply and the main state buyer, The General Authority for Supply Commodities (GASC), maintain that imports of wheat may contain up to a 0.05 percent level of ergot, a common international standard, while the agriculture ministry insists on a new zero tolerance approach.
The leader of the anti-ergot stance is Saad Moussa, head of the central administration of the agriculture quarantine authority. He has warned even the most minute quantities of ergot are unacceptable.
Traders eager to capitalise on Egypt's lucrative market are shaking their heads over the dispute that has paralysed decision-making among officials charged with ensuring the smooth supply of a strategic commodity vital for feeding millions.
So far, Egyptians appear insulated by the ergot tug of war. Egypt says it has enough strategic wheat supplies to last until May 11. But any hint of disruption is cause for concern.
"The problem is not that easy and I don't think the agriculture ministry will have the upper hand because it's a crucial issue," said Hesham Soliman, president of Med Star For Trading.
The ergot saga has already prompted him to postpone his own 25,000 tonne shipment.
"It's the national security of food and I don't think that they can play with it...If they start to reject vessels, it will definitely affect the supply," Soliman added.
Former president Anwar Sadat triggered riots when he cut the bread subsidy in 1977.
When Egyptians rose up against Hosni Mubarak's rule in 2011, one of their signature chants was "bread, freedom and social justice."
The fate of the French wheat shipment to Egypt remained uncertain on Tuesday as Egypt's agriculture ministry again insisted on a strict anti-ergot fungus policy, contradicting assurances made to wheat suppliers by the country's ministry of supply only last week.
Other cargoes booked for the same shipment date in the Oct. 29 tender did not appear to face similar problems. One shipment of French and another of Romanian wheat have already unloaded while a Polish wheat shipment is currently unloading at an Egyptian Red Sea port, according to shipping data.
The French shipment was re-tested, but GASC said although it had received the test results no final decision had been made.
"We have the results of the re-testing but we haven't been notified of any final decision," GASC Vice Chairman Mamdouh Abdel Fattah told Reuters.
Should the French shipment finally be rejected, traders may be hesitant to supply in the future because shipments sent to Egypt are large and difficult to re-sell.
"It is still absolute stalemate and there could be resales from GASC tenders soon if it is not possible to unload the ships," said a European trader.
At GASC's wheat tender last week the 0.05 percent ergot ceiling was maintained, and trading houses --- some of which had threatened to boycott future tenders if the fungus was banned entirely -- participated, though in lower numbers than usual.
Still, the agriculture ministry insisted it would continue to reject all shipments of wheat containing any level of ergot.
"We are completely prohibiting the entry of ergot. This is the final word and this is in accordance with ministry of agriculture legislation," ministry spokesman Eid Hawash told Reuters.
Egyptians are not panicking but local newspapers have warned ergot can cause cancer, putting the Ministry of Supply on the defensive even though the 0.05 percent level had long been accepted. (Aditional reporting by Michael Hogan in Hamburg, Sybille de la Hamaide and Valerie Parent in Paris; writing by Michael Georgy; editing by Veronica Brown and David Evans)