UPADTE 1-FINMA seeks clean record on UBS client data release

* Swiss financial regulator appeals against UBS court ruling

* Federal Admin Court said on Jan 8 FINMA violated Swiss law

(Adds further details, UBS shares, background)

ZURICH, Jan 21 (Reuters) - Swiss financial watchdog FINMA has appealed against a court ruling that said it broke Swiss law last year when it ordered UBS (UBSN.VX) (UBS.N) to hand over tax-sensitive data of nearly 300 clients to U.S. authorities.

In February 2009 FINMA ordered UBS to pass on client data to Washington to allow the bank to settle U.S. tax fraud criminal charges, weakening Swiss bank secrecy rules and prompting wealthy clients to pull billions of francs from their UBS accounts.

The Swiss administrative court said on Jan. 8 that FINMA's decision was unlawful.

FINMA defended its action on Thursday and said it was the only way to avert a threat for UBS and the entire Swiss financial system. FINMA also said it was challenging the ruling in Switzerland's supreme court. [ID:nLDE6070PP]

FINMA said it had "ordered the disclosure of client data as it considered this as the only way to avoid the real threat of the U.S. authorities starting proceedings against the bank."

If the Swiss administrative court decision is upheld, affected clients may claim damages, lawyers have told Reuters.

But the Swiss court ruling has no impact on a civil agreement reached by UBS in August to hand over a further 4,450 names to U.S. authorities, U.S. Internal Revenue Service Commissioner Doug Shulman said earlier in January.

The legal spat is at the centre of great political attention in Switzerland. A parliamentary committee has been charged with a fact-finding mission and will operate under strict confidentiality rules rarely seen in the Alpine country.

UBS agreed last February to pay a $780 million fine and disclose the identity of about 280 clients after the U.S. accused it of helping wealthy Americans to dodge taxes. [ID:nN18464440]

At the time, Swiss Finance Minister Hans-Rudolf Merz defended the move, saying UBS had no choice but to settle the case to avoid criminal charges that could have threatened its existence and undermined Switzerland's economy. [ID:nLJ532056]

FINMA's decision was a prelude to the Swiss government bowing to international pressure on tax havens and agreeing to soften its cherished bank secrecy laws in March, a competitive advantage for the Alpine country's banks. [ID:nLD303850]

Shares in UBS were up 0.6 percent at 1410 GMT, outperforming a 0.37 percent weak European banking index .SX7P.

(Additional reporting by Kim Dixon in Washington; Editing by Sharon Lindores)