UPDATE 3-Wall St banks lose court ruling on hot news ban

* Federal appeals court in New York issues stay

* argued ban cost it clients

* Loss for Bank of America, Barclays, Morgan Stanley (Adds comments from three banks, paragraphs 8-9)

NEW YORK, May 20 (Reuters) - Three Wall Street banks suffered a legal setback when a federal appeals court in New York put on hold a ban on financial news service Inc from quickly reporting “hot news” about their analysts’ research.

The ruling by the U.S. Second Circuit Court of Appeals was a defeat for Bank of America Corp's BAC.N Merrill Lynch unit, Barclays Plc BARC.L and Morgan Stanley MS.N.

These banks had won an injunction on March 18 from U.S. District Judge Denise Cote that required to wait two or more hours before publishing their research. Wednesday’s appeals court ruling lifts that restriction.

The Second Circuit also granted’s request for an expedited appeal. It will hear arguments at the earliest available date after July 26, when briefs are due.

Bank of America, Barclays and Morgan Stanley have argued that had been getting a “free ride” by systematically misappropriating analyst research, including upgrades and downgrades that can instantly move stock prices.

Cote had ordered to wait until 10 a.m. to report research issued before the market opens, and at least two hours for research issued thereafter.

The Summit, New Jersey-based company has said these limits have cost it subscribers and threatened its survival, because waiting to publish can render the research stale.

Morgan Stanley declined to comment specifically on Wednesday’s ruling. Spokeswoman Sandra Hernandez said the bank wants to end “the instantaneous stripping of our content” and “the free-riding off our research franchise,”

Bank of America spokesman Bill Halldin and Barclays spokesman Mark Lane declined to comment. Glenn Ostrager, a lawyer for, was not immediately available for comment.

Dow Jones & Co, a unit of Rupert Murdoch's News Corp NWSA.O, last month filed a similar lawsuit accusing financial news service of republishing its news, often word-for-word, without permission or "journalistic effort."

The cases raise issues of copyright infringement and the media’s First Amendment rights under the U.S. Constitution.

The case is Inc v. Barclays Capital Inc et al, U.S. Second Circuit Court of Appeals, No. 10-1372. (Reporting by Jonathan Stempel, editing by Dave Zimmerman)