TOKYO (Reuters) - Japan's market watchdog on Tuesday recommended fining Morgan Stanley MUFG Securities Co Ltd [MSJP.UL] for alleged market manipulation related to shares of railway operator Seibu Holdings Inc (>> Seibu Holdings Inc).

The Securities and Exchange Surveillance Commission (SESC) recommended the Financial Services Agency (FSA) impose an administrative penalty of 220 million yen (1.49 million pounds) the watchdog said in a statement posted on its website.

The SESC said a trader at the brokerage manipulated the market to raise Seibu's share price by placing large buy orders without intending to make a purchase. The trader sold Seibu shares after their price rose and cancelled the buy orders, the SESC said.

"We sincerely accept this recommendation and we are making further improvement on internal controls," Morgan Stanley MUFG securities said in a statement. "We deeply regret (the incident) and apologise."

Morgan Stanley MUFG Securities is a Japanese brokerage joint venture between Morgan Stanley (>> Morgan Stanley) and Mitsubishi UFJ Financial Group Inc (>> Mitsubishi UFJ Financial Group Inc).

The SESC makes recommendations for administrative penalties to the FSA which rules on cases and metes out punishment.

(Reporting by Taiga Uranaka; Editing by Christopher Cushing)