Italian prosecutors have ordered the seizure of 1.8 billion euros ($2.4 billion) of assets from Japanese bank Nomura <8604.T> as part of a probe into a suspected fraud involving troubled lender Monte dei Paschi di Siena .

Prosecutors in the city of Siena said they were investigating Nomura's former top executive in Europe, Sadeq Sayeed, and Raffaele Ricci, managing director in fixed income sales for the EMEA region at the Japanese bank.

The two men are being investigated over allegations of aggravated fraud and usury (or overpriced loans), obstructing the work of regulators and making false statements to the market in dealings with Monte dei Paschi di Siena.

Sayeed, who left Nomura in March 2010, rejected any suggestion of wrongdoing.

"I vigorously deny any of the allegations," he told Reuters. "The first I heard of it was in the reports earlier today. I have not been approached by anybody. I am trying to analyze it myself."

Ricci did not immediately return calls for comment. Nomura, which said in January it acted fairly and responsibly in all its dealings with Italy's third-biggest bank, declined comment.

The prosecutors said the seizure concerned 88 million euros of hidden commissions they say Nomura received and 1.7 billion euros of funds deposited with Nomura by Monte Paschi by way of collateral for the so-called Alexandria trade, which is at the centre of a probe into risky derivative deals.

The trade involved the purchase by Monte dei Paschi of Italian government bonds for 3 billion euros which the bank financed through a long-term repurchase agreement with Nomura.

Prosecutors and the bank's current management say the trade helped Monte dei Paschi conceal losses suffered by the lender by spreading them over 30 years.

LOSS-MAKING TRADES

Smaller sums were being seized from former Monte Paschi chairman Giuseppe Mussari, ex-managing director Antonio Vigni and the former head of the finance department, Gian Luca Baldassari - who are all under investigation over the Alexandria deal and other trades.

Mussari and Vigni declined to comment. Baldassarri was arrested on February 14.

The 2009 transaction between Nomura and the Tuscan bank is one of a series of loss-making "structured finance" deals carried out under the Tuscan lender's previous management to conceal losses, according to prosecutors.

The bank, which in February received a state bailout of 4 billion euros that was also meant to plug a capital shortfall due to the derivatives deals, booked a pretax loss of 730 million euros in 2012 linked to those trades.

The bank's new management has said it only discovered the true nature of the Alexandria deal in October 2012 after finding a document hidden in a safe.

A judicial source told Reuters the seizure of funds ordered against Banca Nomura International Plc, a unit of the Japanese bank, would be carried out by seizing deposits it has with the Bank of Italy to be able to operate in Italy. The size of those deposits was not made public.

The source also said the seizure had effectively frozen the Alexandria deal.

"The seizure order interrupts the validity of the contracts so they cease to have effect," the source said. "The contracts have been frozen, so receipts and payments are suspended."

Last month Monte dei Paschi, the world's oldest bank, filed a lawsuit in Florence seeking at least 700 million euros from Nomura, Mussari and Vigni over the Alexandria trade. Nomura has been trying to establish British jurisdiction for the dispute.

The Tuscan lender is also seeking at least 500 million euros in compensation from Mussari, Vigni and Deutsche Bank AG for a 2008 deal known as Santorini.

Deutsche Bank has said its 2008 trade with Monte dei Paschi was subject to rigorous internal approval processes.

Monte dei Paschi has been rocked by the scandal over the opaque derivatives and by another probe over its costly 2007 acquisition of its rival Banca Antonveneta.

(Additional reporting by Steve Slater in London; Writing by Silvia Aloisi and James Mackenzie; Editing by Barry Moody and David Holmes)