UPDATE 1-Schwab launches index-tracking ETF family

* To let customers trade funds commission-free

* Line-up includes three international funds

* CEO Bettinger calls launch "only the first step" (Adds ETF industry statistics, money manager comment)

By Aaron Pressman

NEW YORK, Nov 2 (Reuters) - Discount brokerage Charles Schwab Corp SCHW.O unveiled a line of eight index-tracking, exchange-traded funds on Monday with management fees mostly lower than competing ETFs from State Street Corp (STT.N), Barclays Plc (BARC.L) and Vanguard Group Inc.

Schwab, the nation's largest discount brokerage, also said it would let its own customers trade its new funds commission-free online.

Schwab starts out at the back of the pack among ETF managers, but the sector is one of the fastest growing segments of the fund markets. Investors added $56 billion more than they withdrew from ETFs this year, pushing the segment's total assets to more than $700 billion on Sept. 30, according to Morningstar. Barclays and State Street already manage several hundred billion dollars of ETFs.

ETFs are similar to index-tracking mutual funds but trade in real-time on exchanges with constantly changing prices, instead of being priced once a day when the markets close.

Schwab's funds are designed to appeal to investors who have flocked to ETFs as a low-cost, easily traded investment product. The new large-cap U.S. equity fund, for example, carries a management fee of just 8 basis points, versus fees of 9 to 13 basis points charged on similar ETFs by competitors, the discount brokerage said.

The new fund line-up includes three internationally focused funds and five focused on U.S. stock markets. Funds focused on all U.S. equities, large-capitalization U.S. equities, small-cap U.S. equities and all international markets begin trading on Nov. 3.

Funds focused on U.S. large-cap growth and value stocks, international small-cap equities and emerging market stocks begin trading in December.

The all-equity line-up could put Schwab at a disadvantage to start because investors have favored fixed-income ETFs so far this year.

Of the eight categories tracked by Morningstar, all but U.S. equities had a net inflow. Investors withdrew a net $30 billion from U.S. equity ETFs. Taxable U.S. bond funds got the biggest inflow at $27 billion.

Schwab Chief Executive Walter Bettinger said the first set of funds is "only the first step" and promised that additional products would be forthcoming soon.

He compared the commission-free offering to Schwab's move to start selling mutual funds without a commission about 20 years ago. About 20 percent of all ETF trading by small investors already occurs at its brokerage service, the firm said.

Tom Lydon, president of money manager Global Trends Investments in Newport Beach, California, said the new funds should catch on quickly with the many investment advisers who use Schwab's backoffice services.

"This puts ETFs on the same basis as mutual funds and in the same marketplace," Lydon said. "They're not going to be just a small player." (Reporting by Aaron Pressman; editing by Andre Grenon and Gerald E. McCormick)