Morgan Stanley and UBS AG supported Parmalat Finanziaria SpA, Italy’s largest foodmaker, in hiding the cost of selling 720 million euros ($962 million) of bonds six months before it declared bankruptcy, according to a report prepared for Milan prosecutors.

Morgan Stanley used derivatives to help Parmalat sell 300 million euros of bonds that resulted for investor in a higher return than Parmalat reported in a press release, according to the study conducted by Milan consultant Stefania Chiaruttini. UBS, Europe’s biggest bank, suggested Parmalat concealing from the market the full cost of issuing 420 million euros in bonds by delaying disclosure, a bank memo attached to the study shows.

``If the true conditions of the bond issues obtained by the buyers were communicated to the market, it would have caused a serious drop in the price of other bonds,’’ Chiaruttini said.

Milan prosecutor Francesco Greco accused attorneys of 13 executives at Morgan Stanley, the second-biggest securities firm, UBS and four other financial groups of trying to manipulate market prices for Parmalat securities.

Italy-based Parmalat,Collecchio inflated assets and increased more than 14 billion euros in debt before filing for bankruptcy protection in December 2003. Investors and Parmalat’s current chairman, Enrico Bondi, have accused bankers of knowing the company’s financial state at the moment of funding arrangement.

Morgan Stanley commented the situation saying that indictments were groundless.

UBS did not acknowledge any wrongdoing, saying that Chiaruttini’s report was ``polemical’’ and that the memo she cited was ``a discussion paper’’ dated almost two months before the bond sale closed in June.