RCC Holdings Corp fka RCCH

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NEW YORK, Sept 18 (Reuters) - New York has started a wide-ranging probe into possible illegal short-selling in the stocks of Wall Street firms such as Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz), Attorney General Andrew Cuomo said on Thursday.

Cuomo said on a conference call with reporters: "I want the short-sellers to know today that I am watching. If it is proper and legal then there is nothing to worry about."

He said his office was concerned about destabilization of the market. He said it would also look back into possible illegal short-selling that may have occurred in stocks of Lehman Brothers Holdings Inc LEHMQ.PK and American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz), two firms at the heart of the Wall Street crisis.

"This investigation will not only encompass short-selling of Lehman Brothers and AIG but also short-selling in other companies that may be occurring, like Morgan Stanley and Goldman Sachs," Cuomo said.

"My office will investigate and prosecute short-sellers who spread bad information and false rumors and who conspire to bring down a company's stock price or who engage in other manipulative and fraudulent conduct."

Cuomo said the markets "need to be stabilized and the only way to help bring about that stability is to root out and deter short-selling that is based on false information."

From Thursday, U.S. securities regulators tightened rules on traders who profit from stock declines.

The New York prosecutor said he believes the SEC should freeze short-selling of financial sector stocks on a temporary basis. On Thursday, UK securities regulators imposed a ban through Jan. 16 on the short-selling of financial-sector stocks to help stabilize the market. (Reporting by Grant McCool, editing by Gerald E. McCormick)