UPDATE 2-Market watchdog rules against Fiat owner Ifil


(Adds details on judicial investigation)

MILAN, Feb 22 (Reuters) - Italian market regulator Consob has ruled key Fiat shareholder Ifil manipulated the market last year when it denied it had decided on plans for its stake in the carmaker shortly before announcing a complex deal, Ifil said.

Ifil , the Agnelli family's holding firm, would have seen its Fiat stake diluted last year after banks converted a 3 billion euro ($3.6 billion) loan into shares.

But the firm kept its 30 percent stake stable through a deal involving sister firm Exor and an equity swap agreement with U.S. bank Merrill Lynch .

Ifil said on Wednesday that Consob had ruled that its Aug. 24 statement and one issued by its parent, Giovanni Agnelli & C, breached rules on manipulating the market through information.

Consob addressed the ruling to Ifil Chairman Gianluigi Gabetti, Agnelli lawyer Franzo Grande Stevens and Virgilio Marrone, managing director of another holding firm in the Agnelli chain, Ifi. Ifil's CEO Daniel Winteler resigned last year shortly after the deal, brokered by Gabetti, was announced.

Ifil -- which told the market in the August note that it had no information to justify Fiat share price rises -- said it would appeal against the watchdog's decision. Consob has up to 360 days since notifying Ifil to issue a final ruling on sanctions which could include fines.

Earlier this month Consob said Ifil's steps to secure its controlling stake in Fiat would not trigger a mandatory buyout bid, but said it would refer the deal to magistrates in Milan and Turin. No official investigation has been opened, but prosecutors are currently studying the files.

Milan and Turin prosecutors will meet on Friday over their probe into possible market-rigging.

Under the deal struck last year, Ifil bought 82.25 million Fiat shares from Exor, which in turn bought them under an equity swap deal with Merrill Lynch. The U.S. bank had bought the stock in April, when Fiat shares touched record lows. Ifil also bought stock on the market.

Fiat's shares jumped on the market over the summer months last year and traders later linked the trade to buying by Merrill Lynch.

Consob said Exor breached regulations which oblige firms to notify regulators when their shareholdings in a firm change.

Ifil currently has just over 30 percent of Fiat.



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