By Karen Pierog and Steve Neavling

(Reuters) - The city of Detroit filed a lawsuit against bond insurer Syncora Guarantee Inc claiming the company blocked an agreement the city hopes to conclude with major creditors involving revenue from the city's three casinos.

The suit filed on Friday by Detroit's state-appointed emergency manager, Kevyn Orr, focuses on the city's estimated $15 million a month casino tax revenue. The city maintains Syncora told U.S. Bank, which controls the casino funds that were used as collateral in a deal with creditors, not to give up to $11 million a month to Detroit.

The city said those funds were part of ongoing discussions with creditors UBS AG and Bank of America Merrill Lynch and sought to have the funds released.

"Syncora has asserted rights it does not have over collateral it does not need for the purpose of holding the City hostage for ransom," said the lawsuit, filed at the Circuit Court for Wayne County.

Fred Hnat, a managing director at Syncora, said the bond insurer would have "no comment at this time."

The Wall Street Journal cited sources familiar with the matter as saying the city believed Syncora was standing in the way of a deal in which the creditors would get more than 70 cents on the dollar on nearly $340 million in secured debt. In return, Detroit would receive $11 million a month in tax revenue from its three casinos, funds that were used as collateral to back the debt.

"Syncora was interfering with the city's ability to restructure," emergency manager Orr told Reuters.

In the lawsuit, the city said the $11 million would be sufficient to "fund the wages and salary of City fire fighters for two months, or of City police officers for one month."

Detroit has some $18.5 billion in long-term debt and Orr was appointed by Michigan Governor Rick Snyder to fix the city's financial crisis. Orr has sweeping powers and is trying to conclude deals with creditors to avoid bankruptcy.

In a news release, the city said at a hearing on Friday afternoon that Wayne County Circuit Court Judge Annette Berry "granted the city's request for a temporary restraining order" and asked U.S. Bank to release the funds to the city. Berry set a hearing for July 26 before Judge Jeanne Stempien where Syncora "must show cause why further preliminary injunction should be granted."

The Wayne County clerk could not be reached for comment.

(Writing by Nick Carey. Editing by Andre Grenon)

[Image: Detroit's Emergency Financial Manager Kevyn Orr talks to members of the media outside the Detroit Newspapers building about the report he delivered to the State of Michigan about Detroit's finances in Detroit, Michigan May 13, 2013. By Rebecca Cook for Reuters.]