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* Morocco's key real estate sector healthy

* Sector hit by "psychological crisis"

* Whole economy to expand despite downturn

CASABLANCA, April 23 (Reuters) - Morocco's second-largest private bank, BMCE (BMCE.CS), signed deals on Thursday with the country's largest real estate developers to try to shield the key sector from the global economic downturn.

The real estate boom was the engine of growth in the past five years.

But investors worried the impact of the global economic crisis would wither growth and affect others sectors such as construction and the stock market, where real estate companies underpinned the bourse's good performance.

Housing Minister Taoufik Hejira said real estate was hit by a "psychological crisis" caused by the global turmoil.

"The (real) estate market is healthy with strong fundamentals. There is no real crisis in the business. It is just a psychological crisis," he told Reuters on the sidelines the signing ceremony.

Under the deals with the developers, including Addoha (ADH.CS) and CDI, the real estate arm of Morocco's biggest state fund CDG, BMCE will keep credit flowing and guarantee loans for middle class buyers.

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"The government would provide a 50 percent guarantee for the loans and the bank would guarantee the other 50 percent to keep the real estate on the track of growth," Hejira added.

Other banks are expected to follow BMCE to try to ward off the impact of the crisis, officials said. BMCE has a 24 percent share of the country's real estate loans.

"The measures adopted by BMCE bank target the middle class, which constitutes the backbone of the stability of our society," BMCE Chairman Othman Benjelloun told the gathering.

BMCE unveiled a financial product named Salaf Damane Assakane (housing guarantee loan) for middle class houses costing 800,000 Moroccan Dihrams ($93,730) or six times the average low-income price.

STRONG POTENTIAL

The government launched a programme to sustain real estate growth, including a scheme to eradicate slums in the main cities to help fight poverty and radical Islamists.

Eleven suicide bombers from Casablanca's slums killed themselves and 34 others in 2003, jolting the government into tackling poverty and other social problems.

Despite the government's efforts, a third of the 15 million Moroccans living in cities lack decent housing, Hejira said.

About Half of the 30 million population live in the countryside.
"Five million people among the 15 urban population need decent housing. Each year, 150,000 new couples need homes. That is to say, what potential of growth the estate sector has," he added.

Hejira dismissed worries among business people that Morocco's real estate sector could slump into crisis.

"Morocco is still far from the depth of the crisis," he said. "That does not mean that the country would not be affected. Some Moroccans are thinking about cancelling plans to to buy houses because of media talk about the crisis."

Morocco's economy is likely to grow 6.7 percent this year from 5.8 percent last year due to an expected good cerealsharvest and despite the impact of the global crisis, according to official forecasts.

Growth, excluding farming, will slow to 3.9 percent this year from 5 percent last year, according to the state High Planning Commission, underscoring the fragile basis of growth, despite government efforts to reform the economy and decouple it from weather-dependent agriculture.

(Reporting by Lamine Ghanmi; Editing by Andre Grenon)