UPDATE 2-EU ready to sanction Myanmar military but keep open trade

* EU "not prepared to stand by and watch" - Germany's Maas

* Sanctions possible on army-controlled firms - diplomats

* EU's Borrell says no risk of losing trade preferences(Recasts with EU's Borrell on trade preferences)

By Robin Emmott, Michel Rose and Sabine Siebold

BRUSSELS, Feb 22 (Reuters) - The European Union isconsidering imposing sanctions on Myanmar that could involvetargeting businesses owned by the army, EU foreign ministerssaid on Monday, but the bloc ruled out any curtailing of itstrade preferences for the country.

Three weeks after the junta seized power in Myanmar, EUgovernments want to show support for the daily protests andcivil disobedience movement seeking the reversal of the Feb. 1coup and the release of elected leader Aung San Suu Kyi.

"We are not prepared to stand by and watch," German ForeignMinister Heiko Maas said in Brussels, adding that sanctionscould follow if diplomacy failed.

EU foreign ministers released a statement saying they were"ready to adopt restrictive measures", meaning travel bans andasset freezes, and that the bloc was reviewing developmentcooperation and Myanmar's tariff-free access to the EU.

However, EU foreign policy chief Josep Borrell told a newsconference that special trade preferences giving Myanmartariff-free access to the EU's 450 million consumers would notbe withdrawn, to avoid hurting the poorest workers in textiles.

"I am against the possibility of cancelling (tradepreferences)," he said, referring to the EU agreement thatallows Myanmar to sell goods except weapons tariff-free to theEU.

"We are not going to do that. It would be very damaging tothe people, thousands of jobs would be lost, mainly jobs held bywomen in the textile sector. And it would not harm themilitary," Borrell said.

EU governments have condemned the coup and EU lawmakerscalled this month for sanctions. More punitive steps onindividuals and on businesses owned by the military are apossibility, Borrell said.

An EU diplomat told Reuters that beyond targetingindividuals and asset freezes in European banks, sanctionsagainst conglomerates owned by the military was a possible wayforward.

"The Americans have done this already," the diplomat said."The EU should now think of doing something of the samemagnitude to show that this type of parasitic activity is nolonger tolerable".

A second EU diplomat confirmed sanctions on businesses ownedby the army were a possibility, but that it was too early tohave a clear idea what was going to be done.

Although ousted leader Suu Kyi has lost favour with the Westbecause of her defence of the military over allegations ofgenocide against at Myanmar’s Rohingya population, she has thefirm support of the EU, and foreign ministers reiterated callsfor her release on Monday.(Reporting by Robin Emmott in Brussels, Michel Rose in Parisand Sabine Siebold in Berlin, Editing by Timothy Heritage andHugh Lawson)