By Maria Pia Quaglia

MILAN (Reuters) - An Italian regulator is investigating the sale of diamonds through bank branches across the country after a TV report alleged the stones were missold to the public.

Several Italian banks distribute diamonds for diamond brokers, an unusual partnership that generated around 300 million euros ($332.88 million) in sales for the brokers last year.

State channel Rai3 said in October that several banks sold diamonds as financial products in bank branches at twice the market price. It also showed a bank official advising a customer to make the investment without spelling out the risks and promising the diamond would appreciate consistently above the inflation rate in the long run.

"We are reassessing the whole subject again to see whether we need to act at a regulatory level or with specific recommendations, if there are gray areas or a regulatory gap we need to fill, or if there have been abuses that need to be referred to judiciary authorities," a Consob spokesman said.

He declined to give any further details of the inquiry, saying it was at an initial stage.

Banks that market diamonds to their clients include major lenders Intesa Sanpaolo <ISP.MI>, Unicredit <CRDI.MI>, Ubi Banca <UBI.MI> and Banco Popolare <BAPO.MI>.

A spokesman for Intesa Sanpaolo said it made sure diamonds were sold only to clients with a minimum net worth of 100,000 euros. He declined to comment further. A spokesman for Banco Popolare declined to comment.

Unicredit and Ubi Banca spokesmen declined to comment.

Revenues from diamond sales, which are growing at double-digit rates or even doubling at some brokers in recent years, make up only a small portion of total commissions for the banks.

The two main brokers operating through banks are Intermarket Diamond Business and Diamond Private Investment. A spokesman for DPI declined to comment. An IDB spokeswoman said its higher prices reflected the cost of brokerage and other services and that it advised clients to invest only a small portion of their wealth in diamonds and to hold them for the long term.

Consumer groups GloboConsumatori and Aduc say they have received nearly 20 complaints from bank clients who believe they were missold diamonds.

($1 = 0.9012 euros)

(Editing by Mark Bendeich and Anna Willard)