* Lawsuit cites "grossly negligent" audits of New Century

* KPMG accused of helping to hide "catastrophic" problems (Adds background)

By Tom Brown

MIAMI, April 1 (Reuters) - Accounting giant KPMG was hit with a billion-dollar lawsuit on Wednesday over claims its "grossly negligent audits" helped trigger the collapse of a top subprime mortgage lender at the start of the U.S. housing crisis.

New Century Financial Corp, the largest independent provider of home loans to people with poor credit, filed for bankruptcy two years ago amid mounting customer defaults.

Its failure rippled across the U.S. mortgage lending industry, sparking a string of other bankruptcies that roiled financial markets as banks booked losses on billions of dollars in mortgage-linked securities at the heart of the current global financial crisis.

The lawsuit, on behalf of a liquidating trust formed by New Century debtors, was filed against both KPMG International [KPMG.UL] and its U.S. arm, KPMG LLP.

It accuses KPMG of helping cover up "catastrophic" problems at New Century -- including accounting and financial errors -- that led to its collapse.

"As New Century's auditor, KPMG failed its public watchdog duty," the suit says.