* Iraq wants to set up industrial, commercial free zone
* Turkey says PKK tension does not affect Iraq relations
By Shamal Aqrawi
ARBIL, Iraq, June 30 (Reuters) - Iraq hopes to open two new border crossings with Turkey to boost bilateral trade to $20 billion a year, despite renewed fighting between Turkish forces and Turkish Kurd rebels along the frontier, officials said.
Turkey is one of Baghdad's main trading partners and has been one of the largest investors in Iraq since the 2003 U.S.-led invasion toppled Saddam Hussein. There is only one border crossing point now.
"Iraq is looking to open two new border crossings with Turkey and to set up an industrial and commercial area inside Iraqi land on the border with Turkey," the prime minister of the Kurdistan Regional Government, Barham Salih, said on Tuesday during a visit by the Turkish trade minister.
Salih said the free trade zone will be set up in Iraq's northern city of Zakho, 440 km (275 miles) north of Baghdad, but approval from the Iraqi central government was still needed.
Bilateral trade could reach $7 billion by the end of 2010, up from $6 billion last year, Turkish Foreign Trade Minister Zafer Caglayan said during the visit to Arbil, in the semi-autonomous Kurdistan region of northern Iraq.
"With your cooperation, trading could reach $20 billion in the coming four years as expected by the Turkish prime minister," Caglayan said, speaking through an interpreter in a forum addressing around 500 Iraqi and Turkish businessmen.
He added possible investments could be in the fields of tourism, oil and electricity.
Caglayan's visit came at a time when Turkey is launching military operations against Kurdistan Workers Party (PKK) guerrillas along the Iraqi border following the end of a unilateral rebel ceasefire.
Caglayan said the escalation in violence would not affect trade relations with Iraq.
"We will cooperate together against the PKK," he said.
Iraq sends around a quarter of its oil exports, or around 500,000 barrels per day, from its northern city of Kirkuk to the Turkish port of Ceyhan. Baghdad is trying to become a top global oil producer after sealing a series of oilfield deals.
Iraq wants to attract investment to develop its infrastructure and economy after years of war, under-investment and sanctions. (Writing by Khalid al-Ansary; Editing by Rania El Gamal and Jon Hemming)