UPDATE 1-Turkish gold trader begins testifying for U.S. prosecutors

(Adds background)

NEW YORK, Nov 29 (Reuters) - A Turkish-Iranian gold trader on Wednesday began testifying for U.S. prosecutors in the trial of an executive at Turkey's state-owned Halkbank accused of taking part in a massive international money laundering scheme to help Iran evade U.S. sanctions.

Reza Zarrab, who has pleaded guilty and agreed to cooperate with prosecutors, is expected to testify in federal court in Manhattan against Halkbank executive Mehmet Hakan Atilla, in a case that has strained diplomatic relations between the United States and Turkey.

U.S. prosecutors have charged nine people in the case, though only Zarrab and Atilla are known to be in American custody. The other defendants include the former head of Halkbank, Suleyman Aslan, and Turkey's former economic minister, Zafer Caglayan.

Prosecutors have said the defendants ran a complex money laundering scheme that involved smuggling gold and faking purchases of food to give Iran access to American dollars, violating U.S. sanctions.

Assistant U.S. Attorney David Denton told jurors in his opening statement on Tuesday that Atilla had expertise in economic sanctions that he used to design the transactions.

Turkish President Tayyip Erdogan's government has said the case was fabricated for political motives, adding to tensions between NATO allies Ankara and Washington. (Reporting By Brendan Pierson in New York; editing by Chizu Nomiyama and Jonathan Oatis)