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File photo of the Standard and Poor's building in New York.BRENDAN MCDERMID/Reuters

Italian prosecutors are seeking trial for seven current and former employees at rating agencies Standard & Poor's and Fitch over their downgrades of Italy, paving the way for the first European court case over sovereign rating cuts.

Prosecutors in the southern town of Trani, launching a case which bigger Italian courts have refused to back, probed five analysts from S&P and two from Fitch for alleged market manipulation and abuse of privileged information.

S&P on Monday rejected all the claims made by the prosecutors and an Italian judge will have the ultimate say on whether the trial should go ahead.

The magistrates dropped allegations against peer agency Moody's, saying there was no evidence of "intention to manipulate markets" during the raft of rating cuts that have hit Italy since 2011.

If the Italian case goes to trial it may reshape the long-running debate over liability of rating agencies for their credit opinions at a time of great global economic uncertainty.

Agencies have increasingly come under fire for not predicting the subprime mortgage debt crisis of 2008-2009. Last week an Australian court ruled that S&P misled investors by giving top notch ratings to risky derivatives in the run-up to the crisis.

"The agencies for which we seek trial did not respect the rules of transparency, loyalty and the parameters of quality and efficiency set by European regulators," Trani chief prosecutor Carlo Maria Capristo told a news conference.

Prosecutors allege that the reports on debt-laden Italy and its banking system by S&P and Fitch were inaccurate and in at least one case leaked during market hours, provoking steep losses on Italy's stock and bond markets.

"These claims are entirely baseless and without any merit as our role is to publish independent opinions about creditworthiness according to our public and transparent methodologies, which we apply consistently around the world," S&P said in an e-mailed statement on Monday.

There was no immediate comment from Fitch.

Governments across Europe have come under assault from markets for running up big debts which they had trouble servicing. In response, Italy and others have embarked on austerity programs which have proved deeply unpopular.

However, European policy makers have complained the ratings agencies were too quick to downgrade EU states despite bailouts and the painful reforms.

In the United States, authorities have criticized New York-based S&P for cutting the U.S. cherished triple-A rating last August.

Italian prosecutors said on Monday U.S. authorities had formally asked them for information over the case.

The downgrades to Italy's ratings have provoked great anger amongst the country's politicians and business leaders, with some such as former prime minister Silvio Berlusconi alleging a political agenda behind the moves.

However current premier Mario Monti, a technocrat who has won international plaudits for his economic reform drive, has been less strident in his criticism.

The Italian case started last year after prosecutors in Trani received a legal complaint from two consumer rights groups previously turned down by magistrates in Milan and Rome.

The decision by Trani to start a high-profile case dismissed by bigger courts prompted questions in Italy over whether the tenacious magistrates were seeking glory other than truth.

"Our answer is in our acts. Our work is the result of a careful analysis of documents, not of a political valuation," Mr. Capristo said.

"Critics have compared us to a little town in Oklahoma, but we respond with facts and by applying the law," he said.