UPDATE 1-Morgan Stanley's Keller to head US prime brokerage

* Keller reports to Ehrlich

* Prime brokerage units are lucrative

* More hedge funds started up in Q3 than closed down (Adds details on Keller, unit he is taking over, industry)

NEW YORK/BOSTON, Dec 15 (Reuters) - Morgan Stanley (MS.N) named a company veteran to run its U.S. prime brokerage business, which offers services ranging from clearing trades to lending money to hedge funds.

Edward Keller, who currently runs equity-finance sales in the Americas, will also be responsible for the U.S. prime brokerage business. Morgan Stanley told employees about the news on Tuesday in an internal memo that was obtained by Reuters. A company spokeswoman said the memo is authentic.

Keller, who joined Morgan Stanley 15 years ago and worked for the company in London and Boston, will report to Alex Ehrlich, who was hired away from UBS this year to head Morgan Stanley's global prime brokerage business.

Banks' prime brokerage divisions have long been lucrative units as pension funds and endowments poured billions of dollars into the fast growing hedge fund industry over the last years. Hedge funds often select two or three prime brokers to help them borrow securities and meet new investors.

Morgan Stanley has long ranked among the industry's best-known and most prestigious prime brokers for hedge funds.

This year, the hedge fund industry is recovering from last year's drubbing during the financial crisis with research firms reporting that returns are on track to be the best in 10 years and that flows are picking up again.

Recent data also show that hedge fund launches picked up in the third quarter with more 224 opening worldwide while only 190 closed down. (Reporting by Dan Wilchins in New York and Svea Herbst-Bayliss in Boston; Editing by Phil Berlowitz, John Wallace, Gary Hill)