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UPDATE 2-High-frequency trader convicted in first U.S. spoofing case

(Adds reaction, background)

Nov 3 (Reuters) - A U.S. jury on Tuesday convicted high-frequency trader Michael Coscia of commodities fraud and "spoofing" in the U.S. government's first criminal prosecution of the banned trading practice.

The verdict may energize prosecutors to pursue market manipulation cases and spur some high-speed traders to review their strategies, in which orders are sometimes executed or canceled within milliseconds after they are entered.

"This is the clarity that people have been looking for - what exactly is spoofing, what defines it," said Trace Schmeltz, an attorney specializing in white-collar crime at law firm Barnes & Thornburg who was not involved in the case.

Coscia, owner of New Jersey-based Panther Energy Trading, was accused of entering large orders into futures markets in 2011 that he never intended to execute. His goal, prosecutors said, was to lure other traders to markets by creating an illusion of demand so that he could make money on smaller trades, a practice known as "spoofing."

Karen Seymour, a lawyer for Coscia, declined to comment after the verdict. Coscia, who took the stand in his own defense, denied wrongdoing.

Prosecutors said he illegally earned $1.4 million in fewer than three months in 2011 through spoofing.

"The defendant's trading activities disrupted the markets in his favor and against legitimate traders and investors," said Zachary Fardon, U.S. Attorney for the Northern District of Illinois.

The jury in Chicago convicted Coscia on six counts of commodities fraud and six counts of spoofing, all of the charges he had faced, after deliberating for about an hour.

Each count of commodities fraud carries a maximum sentence of 25 years in prison and a $250,000 fine. Each count of spoofing carries a maximum sentence of 10 years in prison and a $1 million fine.

Coscia is set to be sentenced next year.

The verdict came as futures traders and executives from around the world gathered in Chicago for an annual industry conference.

"Investors are better off when spoofers who prey on high-frequency traders are brought to justice," said Bill Harts, chief of the Modern Markets Initiative, a group representing high-frequency and algorithmic traders.

Coscia's firm had fewer than 10 employees. However, he "entered more large orders than...