UPDATE 2-EU executive starts legal action against S&P

(Adds funds industry reaction)

By Huw Jones

BRUSSELS Jan 12 (Reuters) - The European Commission started legal action against Standard & Poor's (MHP.N) on Monday, saying the credit rating agency may have broken European Union rules in the way it sold financial market data.

The EU executive said the agency could be abusing its monopoly position by forcing banks and investment funds to pay licensing fees for the use of numbers that identify U.S. securities.

"The initiation of proceedings against S&P originates from a complaint filed by several associations representing investors -- financial institutions and asset managers," the Commission said in a statement.

The European mutual funds industry welcomed the move but Standard & Poor's said the case had no merit.

"The opening of proceedings does not imply that the Commission has conclusive proof of an infringement but merely means that the Commission will deal with the case as a matter of priority," the executive added.

There is no deadline for an outcome.

Each security such as a stock or bond has a unique number to ensure there is no confusion when it comes to clearing and settling a trade in that security.

Standard & Poor's operates the CUSIP service bureau on behalf of the American Bankers Association, the sole issuer of identifiers for U.S. securities and are used worldwide.

Standard & Poor's says it charges a licence fee when the numbers are used for purposes other than clearing and settlement.

The complaints focus on whether Standard & Poor's can charge financial market data vendors such as Thomson Reuters TRIL.L and Bloomberg News as well as end users of these identifiers, such as asset managers and banks.

It is alleged that S&P forces vendors to cut off financial institutions from data feeds on U.S. securities unless they have licensing agreements.

"The complaint that prompted this enquiry is without merit," an S&P spokesman in London said.

The complaint misrepresented the activities of CUSIP, S&P said, adding that its licensing practices and charges were transparent, in line with industry practices and based on fair, reasonable and non-discriminatory terms.

European investment management industry group EFAMA said the proceedings were due to a complaint it had filed in July 2008 backed by national associations in France and Germany.

"EFAMA... are confident that the complaint will succeed and that S&P will be required by the European Commission to stop the illegal ISIN licensing practice in Europe, thereby ending this long-standing dispute in favour of the European financial services industry," EFAMA said in a statement. (Reporting by Huw Jones, editing by Dale Hudson and David Cowell)