LONDON, June 20 (Reuters) - The London Metal Exchange hurriedly decided to cancel billions of dollars in trades in March last year when nickel prices went haywire, but had better options, lawyers for two financial firms suing the exchange told a London court.

At a three-day judicial review hearing that started at the High Court on Tuesday, representatives for U.S.-based hedge fund Elliott Associates and market maker Jane Street Global Trading argued the LME had acted unlawfully by cancelling trades made on March 8 last year.

They are demanding a combined $472 million in damages.

The two firms said in court filings that the world's biggest market for industrial metals erred in taking quick action to erase trades on the morning of March 8 last year after the benchmark nickel price doubled to more than $100,000 a metric ton in a matter of hours.

"The cancellation decision was taken in great haste at an unminuted meeting convened at short notice," Elliott's lawyers said in a document.

LME CEO Matthew Chamberlain spent just 20 minutes on his mobile phone scrolling for news and watching nickel prices lurch higher before deciding the market was disorderly and later halting trading, a court document previously filed by Jane Street said.

The 146-year-old exchange has said it was justified in closing the market and cancelling trades because $19.7 billion of margin calls would otherwise have led to the bankruptcy of multiple clearing members and created systemic market risk.

"The claims involve an attack on the expert, multi-factorial decision-making of a specialist body... involving complex judgement calls made with the utmost urgency in a unique and fast-moving situation," the LME's lawyers said in a document.

They said fresh analysis has shown the situation was "even more dire than it appeared at the time", with losses on defaulting positions at $2.6 billion, putting the LME's default fund $220 million in the red.

OTHER OPTIONS

Elliott argued LME Clear, the exchange's wholly owned clearing house, could have used a much lower closing price of a day earlier to set margins for trades on March 8.

That option would have resulted in additional margin calls of $570 million instead of $19.7 billion, it said.

"An alternative course was available... which was illogically and irrationally rejected after the briefest of consideration," it added in the document.

Another option was to let the trades stand but adjust the prices, which the LME wrongly rejected because the parties may not have agreed to the modified prices, Elliott said.

"This too would have avoided or adequately mitigated the perceived detrimental effects," Elliott said.

The hedge fund said it had executed trades to sell 9,660 metric tons of nickel through three different LME brokers on March 8.

The exchange said the lawsuit raises questions about the viability of regulated exchanges, which have a duty to maintain market order and the power to cancel trades in exceptional situations.

"It is almost inevitable that any exercise of those powers will be controversial and will have serious financial consequences for those affected," a filing by the LME said.

"This is territory ripe for opportunistic recrimination and the application of wisdom after the fact."

This week's hearing only concerns whether the trades were unlawfully cancelled. A further hearing will determine damages if Elliott and Jane Street are successful.

(Reporting by Eric Onstad, Pratima Desai and Sam Tobin; Editing by Jan Harvey)