* Under investigation in U.S., UK, Japan, Europe and Canada

* RBS says it can't measure likely level of fines

* Shares up 5 percent

* Takes 125 mln stg charge after IT failure

By Matt Scuffham

LONDON, Aug 3 (Reuters) - State-controlled Royal Bank of Scotland said on Friday it has dismissed employees over an interest rate rigging scandal, but gave no indication of whether it would reach a settlement soon with investigating authorities.

Reporting a drop in first-half operating profits, RBS said it was co-operating with governments and regulators which are investigating the role of a number of banks in the setting of Libor and other inter-bank lending rates.

"The Libor situation is a stark reminder of the damage that individual wrongdoing and inadequate systems and controls can have in terms of financial and reputational impact," Chief Executive Stephen Hester said.

RBS said it was being investigated by regulators in the United States, Britain and Japan and by competition authorities in Europe, the United States and Canada. However, it was not possible to measure reliably what effect the inquiries would have, including the timing and amount of fines or settlements.

"I think that the regulators must decide how they want to deal with the situation," Hester told reporters on a conference call.

The announcement marked the first time RBS has confirmed it fired staff for misconduct in the Libor scandal, which has already cost Barclays chief Bob Diamond his job.

RBS has declined to name the dismissed staff. However sources with knowledge of the matter said last month that RBS had fired four traders. They said Tan Chi Min, Paul White, Neil Danziger and investment adviser Andrew Hamilton were sacked at the end of last year. None was available for comment.

New details from court documents and sources suggest that groups of traders working at three major European banks, including RBS were heavily involved.

Tan, the former head of delta trading for RBS in Singapore, was fired in November for allegedly trying to influence the banks' rate setters improperly. He is suing RBS for unfair dismissal, alleging the practice of traders providing input to rate setters was widely known among senior managers at the bank.

Rival Barclays was fined $453 million last month by U.S. and UK regulators after staff reported false interbank rates - the interest charged when banks lend to each other - that were above or below the real rates. Rates reported by a panel of banks are used to calculate Libor.

Thomson Reuters Corp is the British Bankers' Association's official agent for the daily calculation and publishing of Libor.


HESTER UNDER PRESSURE

The Libor scandal has heaped pressure on Hester, who was appointed CEO four years ago to rebuild the bank and its reputation following a bailout in 2008.

RBS, which is 82 percent-owned by the government, reported a first-half operating profit of 1.83 billion pounds ($2.8 billion), down from 1.97 billion in the same period last year. The bank made a statutory pretax loss of 1.5 billion pounds, which included a 2.9 billion pounds accounting loss due to a rise in the value of its own debt.

Shares in RBS were up 5 percent to 214.7 pence at 1000GMT, with the Stoxx Europe 600 banking sector index up 2.3 percent.

"We see this set of numbers as in line with expectations. With recent negative headlines, this may generate some amount of relief in the stock," said analysts at Nomura.

RBS said it had also taken a 125 million-pound hit from costs arising from a computer systems failure in June which prevented customers using their accounts, and could face additional costs when the full scale of the disruption becomes clear.

Regulators in Britain and Ireland were looking into the incident and RBS could face legal claims from customers affected by the glitch which resulted in payments not being processed properly.

Britain's banks are also facing a bill running into billions of pounds to address claims of mis-selling various financial products.

RBS said it had set aside a further 135 million pounds to compensate customers mis-sold loan insurance, taking its total provision so far to 1.3 billion pounds.

The bank also said on Friday the planned flotation of its insurance arm, Direct Line, was on track and planned for October this year.

British government sources told Reuters on Thursday that it had no plans to nationalise RBS fully, contradicting a report in the Financial Times.