BRUSSELS - A Luxembourg court launched a case on Wednesday to determine whether investors who lost money to Wall Street swindler Bernard Madoff can seek compensation from Swiss bank UBS, a spokesman for the court said.

The court's ruling on whether an initial small group of claimants can sue is likely to set a precedent for direct claims from investors who lost billions of dollars.

The decision will be very important for all investors, lawyer Pierre Reuter, who represents clients in six of the lawsuits being reviewed, told Reuters. He added there were a total of around 120 cases pending.

Investors in Luxembourg lost about $1.7 billion to Madoff through two funds set up by UBS on behalf of clients.

A spokeswoman for UBS declined to comment on the case.

Similar lawsuits that could be affected by the hearings include those against HSBC's Luxembourg fund services arm HSSL, whose Herald fund lost nearly $1 billion to Madoff.

UBS acted as custodian for the Luxembourg-based Luxalpha fund, which it says was only created after wealthy clients requested a vehicle to invest in Madoff.

The hearings will continue on Thursday and next week. A decision is expected by early January, Reuter said.

Madoff is currently serving a 150-year prison sentence after pleading guilty to committing a $65 billion fraud. (Reporting by Antonia van de Velde; editing by Elaine Hardcastle)