(Corrects first paragraph to reflect payouts will benefit all commodity customers impacted by MF Global's collapse)
* Brokerage unit trustee seeks to repay U.S. customers
* Seeks to distribute funds even to those who traded on foreign exchanges
* MF Global went bankrupt in October 2011
Oct 2 (Reuters) - The trustee liquidating the brokerage unit of MF Global Holdings Ltd has asked a federal bankruptcy judge for permission to return remaining funds to commodity trader customers affected by the firm's 2011 collapse.
Wednesday's request by court-appointed trustee James Giddens would reallocate some money earmarked for general unsecured creditors to customers of the brokerage, who have a higher-priority payback status. The move could bring closure to customers who have waited nearly two years to fully recover their money, which became tied up when MF Global went bankrupt on Oct. 31, 2011.
Giddens has estimated that $1.6 billion went missing from customer accounts, mainly in the few days prior to MF Global's collapse, and that so far about 98 percent of the money has been returned to customers who traded on U.S. exchanges, and 74 percent to customers who traded on foreign exchanges.
"The relief sought in this motion, if granted, should allow every one of the more than 26,000 former customers of MFGI with allowed net equity claims to be paid in full before the end of the calendar year," attorneys for Giddens said in a court filing.
MF Global was a commodities brokerage run by Jon Corzine, the former New Jersey governor and senator and a former Goldman Sachs chairman.
After its collapse amid exposure to risky European sovereign debt, regulators found that MF Global had tried to bridge its liquidity gaps in its hectic final days by improperly dipping into customer funds.
Giddens was tasked with recovering as much of that money as possible, including through settlements with MF Global counter-parties, including JPMorgan Chase & Co and CME Group Inc.
Last year, Giddens said there was still likely to be a hole in customer funds, and that he would seek to bridge it by reallocating a portion of the money earmarked for non-customer unsecured creditors.
At the time, Louis Freeh, a separate trustee in charge of MF Global's parent entity, challenged whether Giddens had the authority to do that. The sides ultimately settled their differences, and Wednesday's motion seeks to establish that allocation.
A final, complete distribution can only be initiated after court approval. Anyone who opposes the allocation will have until Oct. 16 to file an objection.
Approval of this motion would allow Giddens to move forward with a 100 percent final distribution to all former customers of the brokerage, including those who traded on foreign exchanges.
Corzine faces lawsuits from Freeh, Giddens and customers accusing him of negligently pursuing risky trading strategies, which included a $6.3 billion bet on European sovereign debt, that strained the company's liquidity and culminated in its demise. Corzine has denied wrongdoing.
The cases are In re: MF Global Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-2790; and In re: MF Global Holdings Ltd in the same court, No. 11-15059. (Reporting by Nick Brown and Jonathan Stempel in New York; additional reporting by Sakthi Prasad in Bangalore; Editing by Supriya Kurane)