* U.S. derivatives watchdog says change or drop benchmark
* CFTC head urges use of real rates, not estimates for benchmark
* EU's Almunia says suspects banks and brokers of manipulation
By John O'Donnell and Foo Yun Chee
BRUSSELS, Sept 24 (Reuters) - The Libor benchmark should be replaced or changed, a top U.S. regulator said on Monday, as the European Union's antitrust chief outlined how such rates, used to set the price of loans worldwide, were manipulated by banks.
The scandal over the London interbank offered rate, which is used as a reference when pricing loans and transactions worth more than $350 trillion, led to a fine for Britain's Barclays , investigations by authorities globally and a pledge by the European Commission to criminalise rigging of such indexes.
"It is time for a new or revised benchmark - a healthy benchmark anchored in actual, observable market transactions," Gary Gensler, the chairman of the U.S. Commodity Futures Trading Commission that fined Barclays $200 million, told members of the European Parliament.
Libor is based on banks' assessments of what they expect to be charged rather than measuring actual lending rates. Policymakers in Europe want to change how it is calculated and the comments from one of the U.S.'s senior regulators will add to momentum for an overhaul of Libor and similar benchmarks.
Speaking at the same hearing, Joaquin Almunia, who is leading a probe into benchmarks including Libor and Euribor (Euro interbank offered rate), flagged concerns that not only banks but also their brokers may have been guilty of manipulation.
"The financial sector has grown too large, too complex for comfort," Almunia, the European commissioner in charge of antitrust enforcement, told members of the parliament's economic and monetary affairs committee.
"We need to see the end of what many people call casino capitalism."
Almunia said some market players had exchanged information about trading positions, pricing intentions and their expectations of future prices.
Along with other international regulators, the EU's executive is conducting an antitrust probe into Libor as well as investigating loan benchmarks, the Euro Interbank Offered Rate and the Tokyo Interbank Offered Rate (Tibor).
"Certain market players have colluded to submit aligned rates in order to benefit their trading positions in these interest rate derivative products to the detriment of their trading counterparties as well as non-colluding companies," said Almunia, warning fines would follow if wrongdoing was uncovered.
Any banks found guilty of breaching EU antitrust rules could face fines of up to 10 percent of their global revenues. Sources have told Reuters that several lenders are providing information to Almunia's officials in the hope of securing lower penalties.
The Commission has not identified the banks, but sources familiar with the matter have said Deutsche Bank is cooperating with the EU regulator.
OVERHAUL
Gensler's criticism echoes the remarks of U.S. Federal Reserve Chairman Ben Bernanke earlier this year that the system for determining Libor is structurally flawed.
"Collusion is less likely if there is real transactions that anchor any benchmark. There is less room for mischief," said the head of the U.S. derivatives watchdog, calling for an independent body to collect the data.
This position won tacit backing from Michel Barnier, the European commissioner in charge of writing financial regulation, who said that such a step was possible.
"The only thing that isn't possible is self regulation and the status quo," Barnier told lawmakers.
Britain is already examining changing Libor. Martin Wheatley, Managing Director of UK watchdog, the Financial Services Authority, will announce his recommendations for reforming the benchmark on Friday.
The European Commission, which proposes laws covering all of the bloc's 27 member states, is examining new rules to regulate Libor as well as other similar indexes.
Gensler's concerns are shared by the European Central Bank, which is privately pushing for a rethink on Euribor along similar lines, sources familiar with the matter told Reuters.
Barnier has raised the possibility that EU regulators could take over supervising benchmarks such as Libor, breaking with the current system where banks themselves supervise the London-based rate and its continental European equivalent Euribor.
He has already outlined a proposal for criminal penalties for those who rig an index such as the Libor, but new rules are not set to take effect until 2015.
Libor is not directly supervised by regulators in Britain but is overseen by its sponsor, the British Bankers' Association. Although some borrowers believe it is inaccurate for pricing loans, few are considering using an alternative.
Thomson Reuters, parent company of Reuters, calculates and distributes the rates for the BBA.