French prosecutor urges dismissal of case against IMF's Lagarde

French prosecutors investigating IMF chief Christine Lagarde for negligence over her handling of a massive state payout to flamboyant tycoon Bernard Tapie during her time as finance minister have called for the case to be dropped.

The case dates back to 2008 when Lagarde decided to allow arbitration to end a dispute between Tapie and Credit Lyonnais bank.

At the time, she was finance minister under president Nicolas Sarkozy.

The arbitration resulted in Tapie, who had close ties to Sarkozy, being awarded a payout of 403 million euros ($450 million), which would have to be covered by a state-run body in charge of settling the bank's debts.

The payout was overturned by the Court of Appeal in February.

Lagarde's handling of the case -- specifically her failure to challenge the award that was hugely beneficial to Tapie but prejudicial to the state -- has seen her placed under formal investigation for "negligence".

She has denied any wrongdoing, saying when she was placed under investigation in August 2014: "After three years of procedure, the only surviving allegation is that through inattention I may have failed to block the arbitration that put an end to the long-standing Tapie litigation."

But prosecutor general Jean-Claude Marin called Tuesday for the case to be dropped, a source close to the investigation told AFP, without providing further information.

The decision lies with magistrates at the Law Court of the Republic (CJR), a special court set up to try cases of ministerial misconduct.

There was no immediate response from the court or Lagarde's lawyer.

The IMF chief has always denied any wrongdoing, and says she does not remember discussing the case with Sarkozy.

The arbitration in Tapie's favour ended a long row over the 1993 sale by the tycoon of sportswear group Adidas.

Tapie claimed that Credit Lyonnais had defrauded him by intentionally undervaluing Adidas at the time of the sale and that the state, as the bank's principal shareholder, should compensate him.

Investigating judges are seeking to determine whether the arbitration was a "sham" organised to reward Tapie for his support of Sarkozy.

Lagarde has not ruled out standing in a future French presidential election.