Rising competition for project finance ventures is pushing banks and investment banks into riskier deals and prompting capital market investors to ignore the potential pitfalls, banking sources warn.

"This is a very hot environment, and pricing and conditions have become very aggressive," said Peter Luchetti, senior vice president and global head of project finance at BankAmerica Corp. in San Francisco. "You have to be very careful about how to position assets in this environment."

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