UPDATE 1-Italy prosecutors wind up S&P investigation-source
* Inquiry into rating agencies' downgrades of Italy
* S&P says claims 'baseless and unsupported by evidence'
* Probes into Moody's, Fitch to be concluded by June-source
* S&P, Fitch and Moody's may face trial - source
By Sara Rossi
MILAN, May 31 (Reuters) - Italian prosecutors have concluded a probe into Standard & Poor's over the credit-rating agency's downgrades of Italy, a source close to the investigation said on Thursday, while the agency rejected the allegations as groundless.
The probe, which the source said could lead to up to five current or former S&P analysts facing criminal trial, is part of a larger investigation into a raft of downgrades for debt-laden Italy that prompted a sell-off of Italian assets in January and fuelled long-running frustration with global rating agencies.
European policymakers struggling to contain the euro zone debt crisis have complained the agencies have been too quick to downgrade indebted EU states despite bailouts and austerity measures.
The prosecutors are investigating allegations of market manipulation and abuse of privileged information.
"We believe the reported claims are baseless and unsupported by any evidence. We will continue to defend vigorously our actions and the reputation of our company and people," S&P said in an emailed statement.
Frustration in Italy mounted again earlier this month when fellow agency Moody's carried out a mass downgrade of the country's banking sector, which local bankers and businessmen called an irresponsible attack on a country undergoing painful cuts and reforms to manage its debt burden.
Prosecutors in the small southern town of Trani allege that reports on Italy and its banking system by Standard & Poor's as well as by Moody's and Fitch were in at least one case leaked during market hours, triggering steep losses on the Milan stock market.
They also said some ratings reports were incorrect.
S&P has said none of its controlling shareholders had access to data or reports before the downgrade was made public.
Moody's has said it takes the dissemination of market-sensitive information very seriously and is cooperating with authorities. Fitch has not commented on the case.
The separate probes into Moody's and Fitch are expected to be completed in June, the source added.
The Trani prosecutors launched their probes after receiving a legal complaint from two consumer rights groups, whose claims had been turned down by courts in Milan and Rome.
The case, if it goes to trial, may reshape the debate over the liability of credit agencies, which say they only provide opinions.
The three major credit-rating agencies, which dominate their industry segment, are no strangers to criticism and had already come under fire for not predicting the subprime mortgage debt crisis of 2008-2009.
U.S. authorities reacted angrily when S&P stripped the United States of its cherished triple-A rating last August, but they did not go as far as taking the agencies to court.
Lawyers for the credit agencies have also raised doubts over the jurisdiction of the Trani court over the companies, which have based their Italian operations in Milan and Rome.
But the prosecutors, who sent police to seize documents from the agencies in Milan in January, say that any Italian court can proceed given that the reports were made outside Italy.
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