* Deutsche Bank probed by German regulator BaFin -sources
* UK's Serious Fraud Office could yield criminal prosecutions
By Jonathan Gould and Kirstin Ridley
LONDON/FRANKFURT, July 6 A global investigation into manipulation of interbank lending rates widened on Friday with Britain's fraud squad taking up the case and sources telling Reuters that Germany's markets regulator had launched a probe into Deutsche Bank.
Authorities in the United States, Europe, Japan and Canada are examining more than a dozen big banks over suspected rigging of the London Interbank Offered Rate (Libor). Britain's Barclays has so far been the only bank to admit wrongdoing, agreeing last week to pay a fine of more than $450 million.
The rate-fixing scandal has exploded into the front ranks of politics, especially in Britain, where politicians say the bankers responsible should end up in jail.
Barclays CEO Bob Diamond was forced to resign this week and told a parliamentary committee that some of his firm's former staff could face criminal charges.
The Libor rates, compiled from estimates by large banks of how much they believe they have to pay to borrow from each other, are used to determine interest rates on trillions of dollars worth of contracts around the world.
Germany's BaFin regulator has initiated a "special investigation" into Deutsche Bank, a process which is more severe than a routine investigation initiated by a third party, two sources said on Friday. The sources included a banker and a regulator, both of whom spoke on condition of anonymity.
In Britain, the lack of criminal prosecutions of the rate fixing has been one of the issues infuriating politicians, after e-mails were published showing bankers boasting of fiddling figures and congratulating each other with offers of champagne.
Britain's Serious Fraud Office said in a brief statement that its Director David Green had decided formally to accept the Libor case for investigation.
The SFO will now assemble a case team to pursue an investigation - although it could take years. A spokesman noted that its remit would not be confined to Barclays.
"We don't mention Barclays in our statement, just Libor," the spokesman said.
A source close to the SFO and familiar with its Libor case file said: "A lot of people will be calling around to find lawyers."
The SFO considered launching an investigation into Libor last summer but dropped the plans in September, in part for budgetary reasons, said the source, who spoke on condition he would not be identified.
The SFO has been criticised in the past for failing to achieve convictions in high-profile fraud cases. It gave no further details of how it would conduct its probe.
News of a "special investigation" in Germany also raises the stakes. Deutsche Bank said earlier this year it was cooperating with authorities investigating accusations of manipulation of Libor, the only German bank to make such a disclosure so far.
One of the sources who disclosed the investigation to Reuters said the results were expected in mid July.
The bank declined to comment on Friday but referred to its quarterly report, which said it has received subpoenas and requests for information from U.S. and European authorities in connection with setting interbank rates.
BaFin declined to comment specifically on whether it was probing Deutsche Bank but said it was in looking into suspected manipulation of Libor rates by banks.
"We are making use of our entire spectrum of regulatory instruments, so far as this is necessary," a spokesman said.
Deutsche Bank has disclosed that it is cooperating with the U.S. Department of Justice, the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission, and the European Commission on Libor. These inquiries relate to periods between 2005 and 2011.
As the credit crisis intensified between 2006 and 2008, allegations started mounting that Libor no longer reflected the real cost banks were paying for funds. Authorities have been examining whether traders tried to influence the rate to profit on bets on the direction it would go.
The daily Libor poll asks banks at what rate they think they will be able to borrow money from each other in 10 major currencies and for 15 borrowing periods ranging from overnight loans to 12 months.
The rates submitted by banks are compiled by Thomson Reuters , parent company of Reuters, on behalf of the British Bankers' Association.