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UPDATE 1-U.S. appeals court voids Libor convictions of ex-Rabobank traders

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NEW YORK, July 19 (Reuters) - A federal appeals court on Wednesday overturned the convictions of two former London traders in what had been the U.S. Department of Justice's first criminal trial stemming from the worldwide probe into the manipulation of the interest rate benchmark known as Libor.

The 2nd U.S. Circuit Court of Appeals in New York also dismissed the indictment against former Rabobank traders Anthony Allen and Anthony Conti, saying their right against self-incrimination under the 5th Amendment of the U.S. Constitution had been violated.

Justice Department representatives did not immediately respond to requests for comment.

The U.S. government has received much criticism in recent years from investors and politicians for failing to prosecute enough individuals for financial crimes, and Wednesday's decision was a setback for that effort.

Libor, or the London Interbank Offered Rate, is used by banks to set rates on hundreds of trillions of dollars of mortgages, credit cards and other loans. Several banks, including the Dutch bank Rabobank, have paid roughly $9 billion to resolve Libor-rigging probes by U.S. and other regulators.

Allen and Conti had been convicted in November 2015 on fraud and conspiracy charges for conspiring to rig U.S. dollar and Japanese yen Libor.

Their appeal focused on testimony from former Rabobank colleague Paul Robson, who was cooperating with prosecutors, about testimony that Allen and Conti had been compelled to give UK regulators.

In a 3-0 decision, the appeals court agreed with Allen and Conti that admitting this testimony violated their rights, and that its admission was not harmless beyond a reasonable doubt.

"Compelled testimony cannot be used to secure a conviction in an American court," Circuit Judge Jose Cabranes wrote in a 78-page decision. "This is so even when the testimony was compelled by a foreign government in full accordance with its own law."

Michael Schachter, a lawyer for Allen, was not immediately available to comment.

Conti's lawyer, Tor Ekeland, said his client "is obviously very pleased with the decision. This case should never have been brought in the United States at all. The cloud is gone."

The case is U.S. v. Allen et al, 2nd U.S. Circuit Court of Appeals, Nos. 16-898, 16-939. (Reporting by Jonathan Stempel in New York; Editing by Chizu Nomiyama and Jonathan Oatis)