EXCLUSIVE: Italian prosecutors launch probe into BT's local unit - sources

By Emilio Parodi

MILAN (Reuters) - Milan prosecutors have opened an investigation into BT's Italian unit over alleged false accounting and embezzlement, two sources said, hours after the parent company issued a profit warning citing a hole in the firm's accounts.

BT lost a fifth of its market value on Tuesday as the alleged Italian accounting irregularities compounded a sudden slowdown in its British government work, forcing the telecoms group to cut forecasts for the next two years.

The telecoms group said a review had found a complex set of improper sales, purchase and leasing transactions at the Italian unit, leaving it with a 530 million pound ($660 million) writedown.

No one has been placed under investigation by the Milan prosecutors for the time being, the sources with knowledge of the matter told Reuters.

The embezzlement allegation by the Milan magistrates is the first suggestion that managers at BT in Italy may have directly benefited from the accounting scandal. BT declined to comment.

The prosecutors have had no contact with BT since the company first reported irregularities at the unit last October.

BT has suspended a number of BT Italy's senior management team, who have now left the business, and appointed a new BT Italy CEO who will take charge on Feb. 1.

($1 = 0.7992 pounds)

(Writing by Agnieszka Flak; Editing by Silvia Aloisi/Ruth Pitchford)