FSA faces legal action over short-selling ban-papers

LONDON, Sept 21 (Reuters) - The UK Financial Services Authority faces legal action from a group of leading hedge funds over the ban on short-selling financial shares it imposed on Thursday, the Sunday Telegraph and the Mail on Sunday reported.

The papers said the hedge funds plan to seek compensation for losses suffered as a result of the ban, without naming the funds involved.

The FSA said it did not know of any impending legal action.

"We're not aware of any legal challenge. We're clear that the new code provisions are both valid and necessary," an FSA spokesperson said.

The FSA on Thursday banned investors from short-selling shares in over 30 financial companies, including the UK's biggest banks and insurers, until Jan 16 next year.

Short-selling, in which an investor sells borrowed shares in the anticipation that their price will fall, allowing them to be bought back more cheaply, had been blamed for confidence-sapping declines in the stock price of leading financial institutions including mortgage lender HBOS HBOS.L.

(Reporting by Myles Neligan; Editing by David Cowell)