Pimco fails to block suit alleging market squeeze

* Purchase of Treasury note futures causes alleged squeeze

* More than $600 million losses alleged

* Judge Posner says investor class not overbroad

By Jonathan Stempel

NEW YORK, July 7 (Reuters) - A federal appeals court has rejected Pacific Investment Management Co's attempt to block some investors from suing the world's largest bond fund manager for trying to corner a market for U.S. Treasury note futures.

More than 1,000 investors who said they lost more than $600 million because of Pimco's actions had been certified as a class by a lower court in 2007. A panel of the U.S. Seventh Circuit Court of Appeals in Chicago, in an opinion by Judge Richard Posner, on Tuesday declined to reverse the ruling.

Pimco, a Newport Beach, California-based unit of the German insurer Allianz SE (ALVG.DE), did not immediately return a request for comment.

The lawsuit accused Pimco of boosting its percentage stake in futures contracts on some 10-year Treasury notes to 42 percent from 12 percent over a two-week span in the spring of 2005.

Investors who bet the notes' price would fall complained that Pimco's actions instead drove the price higher, forcing them to pay a "monopoly price" to cover their short positions.

The relevant contracts traded on the Chicago Board of Trade, court papers show.

Pimco argued that class-action status should not have been granted because the class included some investors who did not lose money, and because of potential conflicts of interest among class members who might have suffered differing losses over different periods. The appeals court disagreed.

"Although some of the class members probably were net gainers from the alleged manipulation, there is no reason at this stage to believe that many were," Posner wrote. He added that it was premature to deny class-action status "because of a potential conflict of interest that may not become actual."

Pimco oversees about $756 billion of assets, including the $159 billion Pimco Total Return PTTRX.O fund run by Bill Gross.

The case is Kohen v. Pacific Investment Management Co, U.S. Court of Appeals for the Seventh Circuit (Chicago), No. 08-1075. (Reporting by Jonathan Stempel; Editing by Gary Hill)