By Richard Barley

LONDON (Reuters) - Moody's Investors Service, already under fire over its role in the U.S. mortgage crisis, took another blow on Wednesday as it launched an external investigation after a report that it wrongly assigned triple-A ratings to complex European debt products.

Shares of Moody's (MCO.N: Quote, Profile, Research) closed almost 16 percent lower, the most ever in a single day, after the Financial Times said a coding error in a Moody's computer model caused the products to be given a rating four notches higher than they merited.

Moody's said in a statement it recently hired law firm Sullivan & Cromwell and initiated a "thorough external review" of its rating process for the securities and would take any appropriate actions after the review is completed.

The FT reported that internal Moody's documents the newspaper had obtained showed the agency had discovered the error early in 2007.

Moody's corrected the coding glitch at that time and instituted changes to its methodology, the FT said. But the products, called constant proportion debt obligations, or CPDOs, kept their triple-A rating until January 2008, when turmoil in financial markets worldwide led to hefty downgrades, the newspaper reported.

Moody's said in a statement it rated 44 European CPDO tranches totalling about $4 billion (2 billion pounds).

A Moody's spokesman said the company hired the law firm to conduct the review after it heard the FT's story was in the works.

"This is a serious hit," said Andrea Cicione, a credit strategist at BNP Paribas. "The FT is reporting that some people in (Moody's) have known about the problem since early 2007. Clearly the (ratings) should have been lowered."