UPDATE 1-UK watchdog sets deadline for Libor interest rate swaps

(Adds more detail)

LONDON, Nov 21 (Reuters) - Britain's Financial Conduct Authority (FCA) said on Thursday it wants banks to stop offering Libor-based interest rate swap contracts from the first quarter of next year.

The FCA has said the compilation of the tarnished Libor interest rate benchmark is expected to cease at the end of 2021 and be replaced by Sonia, a rate compiled by the Bank of England.

"In sterling interest rate swap markets, we will be encouraging market-makers to make Sonia the market convention from Q1 2020," said Edwin Schooling Latter, the FCA's director of markets and wholesale policy.

Banks were fined billions of dollars for trying to rig Libor in its different currency denominations by massaging the quotes they submitted. Transactions used for central bank rates are seen as much harder to rig.

Schooling Latter said at this stage, that did not mean there would be no more sterling Libor swap transactions for those with a particular reason for preferring Libor (the London Interbank Offered Rate) over Sonia.

But it did mean making it standard to quote and offer swaps based on Sonia rather than Libor, he said.

"As infrastructure and liquidity to support Sonia swaps are already in place, this should be achievable with relatively little cost," Schooling Latter said in a speech in London.

The effective deadline ratchets up of pressure on markets to migrate from Libor - used globally to benchmark contracts such as derivatives worth more than $300 trillion - to new rates compiled by central banks including the Bank of England, the U.S. Federal Reserve and the European Central Bank.

The central banks' rates are based on actual market transactions rather than quotes that banks submit. (Reporting by Huw Jones; Editing by David Clarke)