* Minister voices doubts over effectiveness of no-fly zone
* Says more important to cut off funds to Gaddafi
(Adds minister on financial sanctions, no-fly zone)
PARIS, March 1 (Reuters) - France said on Tuesday humanitarian aid must be the priority in Libya rather than military action to oust Muammar Gaddafi, a day after Washington said it was moving warships and air forces closer to Libya.
The French government has sent two airplanes with medical equipment and staff to the Libyan city of Benghazi, now in the hands of anti-Gaddafi rebels, and more planes are to follow, government spokesman Francois Baroin said.
European Affairs Minister Laurent Wauquiez said preventing Gaddafi paying mercenaries by stopping Libyan authorities selling shares in European countries should also be a priority, rather than trying to set up a no-fly zone over the country.
Asked about the possibility of military action to dislodge Gaddafi, Baroin said in an interview on France 2 television: "It's not a priority. The priority is humanitarian aid, it's no longer diplomacy."
The United States said on Monday it was moving ships and planes closer to the country and British Prime Minister David Cameron said his government would work to prepare a "no-fly" zone to protect the Libyan people.
"We are absolutely horrified by what's happening" in Libya, Baroin said. "We are coordinating with other members of the European Union on humanitarian aid."
France and Britain are calling for an emergency summit of the 27-nation European Union to discuss the uprising in Libya, possibly as early as this week.
As international pressure on Gaddafi builds, forces loyal to him were massed in the west of the country on Tuesday, according to residents, as he battled to cling on to power.
Wauquiez said that restricting Gaddafi's funds would be a more effective way of clamping down on his loyalists than trying to enforce a no-fly zone over a country as large as Libya.
"Libya is twice the size of France. So is it even possible to set up a no-fly zone quickly, and would it be effective?" he asked in an interview with BFM and RMC radios.
Instead, he said, a priority should be "cutting off Gaddafi's money because the main risk is that he uses this money to pay an army of mercenaries.
"Paris is in favour of the European Union going a step further on that point. The Libyan state owns stakes in European companies. The aim would be to ensure that it can not sell its stakes," Wauquiez said. (Reporting by Leigh Thomas and Laure Bretton; editing by Paul Taylor)
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