UPDATE 2-UK to crack down on market abuse with new powers

(Adds FSA, Treasury, details)

By Clara Ferreira-Marques

LONDON, March 28 (Reuters) - Britain plans to give its financial watchdog new powers to fight market abuse, including the ability to grant whistleblowers immunity from prosecution in return for evidence, Finance Minister Alistair Darling said.

The Financial Services Authority (FSA), often criticised for failing to secure enough market abuse convictions, has long called for more powers to combat the practice, including the ability to grant immunity to witnesses, along the lines of a U.S.-style whistleblower system, and plea-bargaining.

Regulators say this would help them track down the crucial "smoking gun" in cases where evidence is often circumstantial.

The long-standing debate has been given new impetus by market turbulence and a raid on shares in mortgage bank HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz) last week, which prompted the FSA and the Bank of England to make rare public statements reassuring the market they would clamp down on rogue trading.

"I can't allow us to get into a situation where people quite deliberately manipulate markets for personal gain and with the potential to destabilise the financial system," Darling said in comments published in the Guardian newspaper on Friday.

"People are getting away with it and the time has come for us to start looking at it again," the chancellor of the exchequer said. "If a handful of people are up to no good we have to make sure the authorities have the tools to do the job."

An FSA spokeswoman said the watchdog welcomed the proposals.