LONDON (Reuters) - Britain's markets watchdog said it has asked insurer Aviva to explain the legal basis for statements about proposals to cancel high-yielding preference shares, following a slump in the shares.

Aviva said this month it was considering cancelling the preference shares, which give holders fixed dividends that take priority over ordinary share dividends.

It said the shares carried high coupons and would no longer count as regulatory capital from 2026.

But it added in a statement last week that no decision had yet been taken.

Preference shares for Aviva <35PG.L> and its legacy business General Accident have fallen by up to 30 percent since Aviva's initial announcement on March 8, as investors worried that the stock could be cancelled below its value.

Shares in the preference shares of some other UK financial firms have also fallen, on concern those companies may follow suit.

The Financial Conduct Authority (FCA) said on Wednesday it "has already been making active enquiries into the issue, including asking the firm to explain the legal basis for its statements concerning the cancellation of the preference shares."

"We are engaging with the firm, its advisers and security holders, including complainants," the watchdog said in an emailed statement.

The Treasury Select Committee of Britain's parliament asked the FCA this week whether Aviva had communicated information about the possible cancellation of the shares in a way that was consistent with rules on listing, disclosure and transparency.

The FCA said it would respond to the Treasury Select Committee's letter, without giving further details.

Aviva declined to comment directly on the FCA statement or the committee's letter.

A spokeswoman for the insurer pointed to comments by Chief Financial Officer Tom Stoddard at the company's March 8 results presentation.

"As we evaluate the alternatives, one of the things we are considering is how to balance the interests of ordinary and preferred shareholders," he said.

Fund managers BlackRock, Eden Tree, GAM, Invesco, Legal & General and M&G Prudential met Aviva Chairman Adrian Montague on Tuesday to ask him not to cancel the shares, a source familiar with the matter said, confirming a report in the Times newspaper.

"They presented their concerns and the chairman listened," the source said.

For a graph on preference share prices, click - http://reut.rs/2ptejR7

(Reporting by Carolyn Cohn, Graphic by Alasdair Pal; Editing by Kirstin Ridley/Edmund Blair/Susan Fenton)

By Carolyn Cohn