UPDATE 6-US prosecutors to appeal judge's ruling on Madoff

(Adds judge's issue of stay)

By Grant McCool

NEW YORK, Jan 12 (Reuters) - Federal prosecutors said on Monday they will appeal a judge's decision that allows accused swindler Bernard Madoff to stay in his Manhattan apartment under house arrest.

"The government intends to appeal the (magistrate) court's order to the district court," Acting U.S. Attorney Lev Dassin said in a letter to U.S. Magistrate Judge Ronald Ellis.

Ellis responded to the letter by ordering a stay for 48 hours until 1:00 p.m. (1800 GMT) on Wednesday.

Earlier in the day, Ellis issued a ruling, rejecting a government request to throw Madoff in jail.

The ruling gives Madoff, who has become one of the most vilified figures in America, more time in his $7 million home before he goes to trial or pleads guilty as authorities probe a $50 billion investment fraud to which they say he confessed a month ago.

Madoff's lawyers have said their client is cooperating with government investigations following his Dec. 11 arrest for what would be the biggest Ponzi scheme in history. In a Ponzi scheme, early investors are paid with the money of new clients.

The government has until mid-February to convince a grand jury to bring an indictment against Madoff, a former chairman of the NASDAQ stock market and a once-respected figure for more than 40 years in a financial industry that is already reeling in crisis.

It is not unusual for people accused of white-collar crimes to be offered bail packages, and at this stage of the case, indictments could come at any time, legal experts said.

Ellis said in a written ruling on Monday: "Aside from the bare assertion that there remains some risk of flight, the government has failed to articulate any flaw in the current conditions of release."

Prosecutors asked the judge last week to revoke bail, arguing that Madoff had violated a Dec. 18 court order freezing his assets by mailing more than $1 million worth of valuables to relatives and friends.

They said he was a flight risk and could cause further economic harm to investors by dispersing his belongings.

ELECTRONIC MONITORING

Legal experts said it was hard for the government to argue that 70-year-old Madoff might flee.

"The guy is on electronic monitoring, he has a guard watching him every day, and the press is watching his every move," said Daniel Margolis, a partner at law firm Pillsbury Winthrop Shaw Pittman LLP and a former federal prosecutor.