UPDATE 2-Australian regulator starts legal action against CBA over rate-manipulation allegations

rate-manipulation allegations@

* CBA accused of manipulating benchmark rate on three occasions

* Regulator is seeking unspecified financial penalties

* CBA disputes allegations (Adds court document allegations, CBA's response)

SYDNEY, Jan 30 (Reuters) - Australia's corporate regulator said on Tuesday it had started legal proceedings against Commonwealth Bank of Australia over rate-manipulation allegations.

The Australian Securities and Investments Commission (ASIC) said the country's biggest bank was involved in manipulating the bank bill swap reference rate (BBSW) for profit on three occasions in 2012. CBA disputes the allegations.

The BBSW is the primary interest rate benchmark used in Australian financial markets to price home loans, credit cards and other financial products.

"ASIC alleges that on three specific occasions CBA traded with the intention of affecting the level at which BBSW was set so as to maximize its profits or minimize its losses to the detriment of those holding opposite positions to CBA's," ASIC said in documents submitted to the Australian Federal Court on Tuesday.

The regulator said it was unconscionable for CBA to trade in this manner, and also to enter into products priced off the rate without disclosing its trading practices to its customers and counterparties.

CBA said in a statement on Tuesday it fully co-operated with the regulator's investigations over the last two years.

"Commonwealth Bank disputes the allegations made by ASIC," the statement said.

ASIC is seeking unspecified financial penalties for CBA.

The methodology used to calculate the BBSW was changed in 2013.

The corporate regulator had also accused CBA's rivals - Australia and New Zealand Banking Group, National Australia Bank and Westpac Banking Corp - of rigging the same rate last year.

Westpac is defending itself against the allegations, while NAB and ANZ have settled the case.

The allegations of rate manipulation have come one day after CBA announced its retail banking boss Matt Comyn would be the bank's next chief executive, replacing Ian Narev.

Australia's big banks, which are entering into a tougher trading period afer years of record profits, will face a wide-ranging inquiry this year into their practices. (Editing by Kim Coghill and Jacqueline Wong)