Italy prosecutors probe S&P in New York: source

MILAN (Reuters) - Italian prosecutors have probed Standard & Poor's headquarters in New York for alleged market manipulation in a investigation over the credit-rating agency's downgrades of Italy, a legal source said on Tuesday.

The S&P base in New York was probed by prosecutors in Trani, a small town in southern Italy, under a law which holds companies liable for crimes committed by their employees.

A lawyer for S&P in Milan said he believed the development was a "formal step" in the ongoing Trani case. S&P has rejected the prosecutors' allegations as groundless.

The probe is part of a larger investigation into a raft of downgrades by S&P, Moody's and Fitch for debt-laden Italy that prompted a sell-off of Italian assets and fuelled long-running frustration with global rating agencies.

The Trani prosecutors launched their probes after receiving a legal complaint from two consumer rights groups, whose claims had been turned down by courts in Milan and Rome.

(Reporting By Sara Rossi; Editing by Emilio Parodi)