UPDATE 1-Banks must face U.S. silver rigging lawsuit; UBS is dismissed

* Claims narrowed against ScotiaBank, HSBC

* Deutsche Bank settlement agreement expected soon

* Banks accused of suppressing, exploiting silver prices (New throughout, adds comments, discussion of gold riggingdecision)

By Jonathan Stempel

NEW YORK, Oct 5 (Reuters) - Silver investors may pursue alawsuit accusing two major banks of conspiring to fix prices andexploit market distortions, affecting $30 billion traded eachyear in the precious metal and related instruments, a federaljudge has ruled.

U.S. District Judge Valerie Caproni in Manhattan rejectedefforts by Bank of Nova Scotia ("ScotiaBank") and HSBCHoldings Plc to dismiss the lawsuit, in a decision madepublic on Tuesday.

Caproni also dismissed UBS Group AG as a defendant,saying there was nothing to show it manipulated prices.

Deutsche Bank AG settled related claims in April,and the investors plan soon to seek preliminary approval of asettlement, their lawyer Vincent Briganti, a partner at LoweyDannenberg Cohen & Hart, said on Wednesday. Termshave not been disclosed.

ScotiaBank spokesman Rick Roth and Deutsche Bank spokeswomanAmanda Williams declined to comment. HSBC had no immediatecomment. UBS spokeswoman Erica Chase said the Swiss bank ispleased the court accepted its arguments.

Caproni also ruled in a separate decision that another groupof investors may pursue gold-rigging claims against ScotiaBank,HSBC, Barclays Plc and Societe Generale.

In the silver case, investors accused Deutsche Bank,ScotiaBank and HSBC of rigging prices through a secret dailymeeting called the Silver Fix.

They alleged that the conspiracy started by 1999, andenabled the banks, including UBS through its alleged ability toexploit the distortions, to pocket returns that could top 100percent annualized.

In her 61-page decision, Caproni said the investorssufficiently, "albeit barely," alleged that Deutsche Bank, HSBCand ScotiaBank violated U.S. antitrust law by conspiringopportunistically to depress the Silver Fix from January 2007 toDecember 2013.

Caproni gave the investors 14 days to amend their complaint,including against UBS. Briganti said they plan to do so.

The case is In re: London Silver Fixing Ltd AntitrustLitigation, U.S. District Court, Southern District of New York,No. 14-md-02573. (Reporting by Jonathan Stempel in New York; Editing by FrancesKerry and David Gregorio)