UPDATE 3-EU probes U.S. online gambling crackdown

(Adds U.S. comment, EU ambassador comment)

BRUSSELS, March 10 (Reuters) - The European Union launched an investigation on Monday into whether U.S. prosecutions of foreign online gambling companies were discriminatory, possibly paving the way for action at the World Trade Organization.

European online gambling companies, such as PartyGaming (PRTY.L) and BWIN Interactive Entertainment (BWIN.VI), complained in December that the U.S. Justice Department singled out foreign online gambling companies.

"The U.S. has the right to address legitimate public policy concerns relating to Internet gambling, but discrimination against EU companies cannot be part of the policy mix," EU Trade Commissioner Peter Mandelson said in a statement.

The commission said it would look into the complaints over the next five to seven months and could decide to launch WTO proceedings against the United States.

The United States came into dispute with the EU and other countries after it withdrew its WTO commitments to opening up its gambling markets to foreign companies and then introduced measures in 2006 to cut off that access.

The measures wiped billions of euros off the stock market value of the European sector.

The European Commission agreed in December to a U.S. offer of openings in other sectors as compensation for the measures.

But the U.S. Department of Justice is still investigating activities of EU companies before the measures were introduced.

A U.S. Justice Department spokesman said they had no immediate comment on the EU's decision to investigate whether to file a complaint at the WTO.

U.S. trade officials said they had been assured by EU officials the investigation would not upset the compensation package the two sides struck in December.

EU companies complain the United States has allowed U.S. companies offering Internet horse race betting to continue operating, while other forms of online gambling have banned.

"Our basic approach is that we don't want discrimination between operation nationality in this area," the EU Ambassador to the United States John Bruton said in an interview with Reuters reporters in Washington.

As part of a U.S. crackdown on Internet gambling, two founders of payments processor NETeller Plc NLR.L were arrested last year and BETonSPORTS also pleaded guilty to U.S. racketeering charges and agreed to cooperate in a case against the company's founder and other co-defendants.

Clive Hawkswood, chief executive of Europe's Remote Gambling Association, welcomed Monday's announcement by the Commission and said companies hurt by the U.S. market closure were suffering a "double whammy" of being prosecuted while U.S. rivals were not.

"By any analysis, the U.S. policy is fundamentally unfair, and we are delighted that the Commission shares our concern and alarm," he said in a statement.

"The U.S. simply needs to end its discriminatory prosecution of EU companies, and their shareholders, who have after all been out of the US market for almost two years now."

(Reporting by William Schomberg in Brussels and additional reporting by Doug Palmer in Washington; Editing by Dale Hudson)