(Corrects to say Jules Andres is Mattel's spokeswoman and not spokesman) (Adds quotes, company response, byline)

By Scott Malone

BOSTON, Dec 15 (Reuters) - Mattel Inc <MAT.N>, the world's largest toymaker, reached a $12 million settlement with 39 U.S. states over lead-tainted toys that prompted a health scare in 2007, the Massachusetts attorney general said on Monday.

The settlement, which came after a wave of scandals involving a slew of Chinese manufacturers, came near the peak of the U.S. holiday shopping season, when parents are packing toy stores seeking gifts for their children.

"We had been lulled into a sense of security that the lead paint issue was behind us," said Massachusetts Attorney General Martha Coakley. "Both the federal and state governments need to be vigilant to be sure that we do not have increased risk to our children."

Last year, Mattel recalled more than 18 million toys made in China because of hazards related to magnets and lead paint. Small magnets swallowed by children can damage their digestive tracts, while lead paint, if ingested, can contribute to brain damage or even death.

No children were believed to have been injured by Mattel's lead toys and none of the toys in question, including products with the Barbie, Dora the Explorer and Cars characters, remain on the market, Coakley told a press conference.

The states will use the money to educate consumers on the dangers of lead paint and to test children for lead exposure. The United States is lowering its acceptable level of surface lead paint in toys by 85 percent, starting in August. 2009. As part of the agreement with the states, Mattel has agreed to meet that standard by Nov. 30.

"Mattel has demonstrated its commitment to children's safety by pledging to meet standards even more stringent than those currently required," Mattel spokeswoman Jules Andres said in a statement. "Mattel also has taken steps that go beyond current requirements to give parents greater confidence that the Mattel toys that they buy this holiday season will be the safest ever." China's manufacturing industry -- a key supplier of toys, apparel and food to much of the world -- has faced a wave of complaints in recent years, most recently as thousands of people have fallen ill as a result of consuming milk powder tainted with melamine, a chemical used to make plastics.

Chinese-made pet food, toothpaste and lipstick have also been found to contain dangerous chemicals in recent years. (Reporting by Scott Malone, additional reporting by Aarthi Sivaraman in New York; Editing by Derek Caney and Jeffrey Benkoe) ((Boston.Newsroom@thomsonreuters.com; +1 617-856-4342; Reuters Messaging: scott.malone.reuters.com@reuters.net))

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