Brokers at MF Global early on Wednesday stopped processing liquidation orders from customers and transferring accounts to other brokerages, possibly to clear the way for a bulk transfer of positions, sources at the bankrupt brokerage told Reuters.

After being allowed on Tuesday to resume limited trading solely in order to liquidate positions on behalf of their customers, two sources at MF Global told Reuters they had been told to stop that activity earlier in the day.

Separately, another broker said that MF Global customers were now also unable to transfer their accounts to another clearing party.

The stop-start effort to untangle MF Global's customer accounts after the company failed to find a buyer and filed for bankruptcy protection on Monday has frustrated clients and constricted trading income markets.

It may be that regulators and exchanges are attempting to move customer accounts in bulk in order to free up positions more quickly, some traders said. That scenario appeared even more likely after MF Global's trustee filed in bankruptcy court for approval to transfer segregated accounts to other brokers.

A Chicago broker at MF Global, cut down by high-risk bets on European debt as it aggressively tried to transform into a mini-Goldman Sachs, said he was told by the orders clearing desk that he had to stop all liquidation of positions.

I was told we can't do anything anymore, he said, adding that he was not certain of the reason but suspected that it was tied to the bankruptcy process underway.

On Tuesday, after a temporary freeze on all trading, MF Global was allowed to resume liquidating customers' grains and livestock positions on the Chicago Mercantile Exchange and all ICE Futures USA positions.

The abrupt failure of MF Global -- which billed itself as the number one broker on the New York Mercantile Exchange and COMEX, and the second largest on the CME -- brought activity on Monday to a crawl, with most major exchanges severely limiting activity or suspending its membership.

But trading activity picked up when liquidation of positions by MF Global customers had not been as severe as some had feared, and a willingness to take risk brought customers back.

A broker at Chicago brokerage said MF Global clients were told on Wednesday morning that they would not be able to transfer their accounts to another futures commission merchant.

It took them a couple days to figure out that they were losing money on position transfers, he added.

(Reporting by K.T. Arasu and Karl Plume in Chicago and Matthew Robinson in New York; editing by Alden Bentley)