* Aggressive expansion of ride-service app draws fire
* Unclear whether rules pre-dating mobile phones apply
* Unions could oppose San Francisco startup nationally
By Naomi O'Leary and Isla Binnie
MILAN, March 20 (Reuters) - Striking taxi drivers marched through Italy's second city Milan on Thursday in protest against app-based ride service Uber, a Silicon Valley prodigy that has drawn furious opposition as it seeks to become a global force.
Demonstrators demanded that the authorities crack down on ride services that taxi drivers say are illegal, and banners held by protesters and draped over cabs made it clear the main target was the increasingly prolific Uber, a smartphone-based service that connects users to their nearest chaffeured car.
Valued at $3.5 billion and with investors including Google Inc, Uber is considered one of the hottest properties in Silicon Valley. But it has met with hostility and regulatory hurdles as it expands from its San Francisco hometown to more than 70 markets worldwide.
An anti-Uber protest in Paris turned violent in January, local cab companies are fighting it in court in Chicago, and the app has been blocked by law from operating in several cities in the United States.
In Milan, Uber says its drivers have been confronted aggressively and their cars damaged, and posters calling its regional general manager a thief have appeared around the city.
Milan's taxi unions say that because the app allows drivers to be summoned while in their car, it violates a 1992 law which describes hired drivers as a service ordered from the garage where their business is based, as distinct from taxis, which can pick up passengers on the move.
"There was illegality in Milan before Uber, but this is more malicious," said Raffaele Grassi, head of Milan taxi union SATAM and town councillor. "Technology cannot be used to evade the law."
The taxi unions are a strong lobby group in Italy and have repeatedly fought off attempts to liberalise the industry and increase the number of cab licenses available. Licences are often passed down from father to son and according to drivers they can sell for six-figure sums.
The town council last July ordered Uber cars to return to company headquarters between each ride, irrespective of the location of their next passenger. But this was suspended by a regional court that said the rule was "irrational" given the advent of mobile phones.
Uber, which launched in Milan a year ago before moving into Rome, says it has made allowances for the laws in place and operates in line with all regulations effectively in force.
As commuters struggled to get to work on Thursday, there were signs the taxi strike could be counter-productive as Uber was left as the obvious alternative in a city where ride-service rivals such as Lyft and Hailo have yet to gain a foothold.
In a busy square in central Milan, exasperated pedestrians surveyed a line of empty taxis with 'out of service' stickers in their back windows.
"This is a disaster. You can't just shut down a city like Milan," said 33 year-old advertising executive Raffaele Sperelli as he tried to find a different way to get to a meeting.
In response to the strike, Uber cut its prices by 20 percent for Thursday, and said business was up significantly.
The price cut was characteristic of the fight between Milan's 5,000 taxi drivers and the service, which has heated up as Uber rallied users to Tweet their support and lobby the city council against what it describes as a taxi monopoly.
Uber has yet to offer in Italy the low-cost version of its service available in its main U.S. markets, where drivers offering rides are ordinary people with cars rather than professional chauffeurs, something taxi drivers in Italy say they will oppose.
Opposition to Uber in Italy could grow as Milan union leader Grassi said he would meet with national leadership next week to discuss a nationwide strategy to combat it and similar services.
Cab driver Vincenzo Mazza, 62, summed up the current antagonism in the taxi stands outside Milan's central station.
"They come and arrogantly park next to us, knowing very well they do not belong in the piazzas," said Mazza, who has been driving taxis for 40 years.
"They steal our work, it's absolutely illegal, and they use American law ... which puts them outside local rules. We will never accept it." (Reporting by Naomi O'Leary and Isla Binnie; Editing by Hugh Lawson)