* ACCC says Facebook, Google dominate online ad and news display
* Recommends new regulator to scrutinise their behaviour
* ACCC investigating 5 possible law breaches by undisclosed firms
* Algorithms governing news, ad display lack transparency -ACCC (Updates with Facebook response)
By Tom Westbrook
SYDNEY, Dec 10 (Reuters) - Australia's competition watchdog on Monday recommended tougher scrutiny and a new regulatory body to check the dominance of tech giants Facebook Inc FB.O and Alphabet Inc's GOOGL.O Google in the country's online advertising and news markets.
The recommendation, in a preliminary report on the U.S. firms' market power, is being closely watched around the world as lawmakers wrestle with the powerful tech firms' large and growing influence in public life, from privacy to publishing.
It comes days after Australia passed laws forcing tech companies to help police access private user data, and amid growing concern from authorities worldwide about the giants' commercial behaviour and distribution of so-called "fake news". you get to a certain stage and you get market power, which both Google and Facebook have, with that comes special responsibilities and that means, also, additional scrutiny," Australian Competition and Consumer Commission (ACCC) Chairman Rod Sims told reporters in Sydney.
He said the companies' enormous market share - Google has a 94 percent share of web searches in Australia - and opaque methods for ranking advertisements gave the firms the ability and incentive to favour their businesses over advertisers'.
"The idea of the regulator role would be to keep an eye on that and proactively bring some transparency," he said, adding the two firms also had outsized influence over news distribution.
Drafting the report had also spurred five investigations into possible consumer or privacy law breaches in Australia, Sims said, without disclosing which firms they concerned. and Google, in separate statements, both said they will continue to work with the ACCC while the regulator prepares its final report due in June.
The two firms have already promised to do more to tackle the spread of fake news and, in submissions to the ACCC, said they provided users access to global news articles while providing advertisers a cheap way of reaching big audiences. ACCC has said its recommendations are subject to change, but suggests handing the new regulator investigative powers to examine how the companies rank advertisements and news articles.
"It is potentially a game changer," Margaret Simons, an associate professor of media at Monash University in Melbourne, said by phone, since it would bring the tech companies under a regulatory framework more typically applied to media firms.
"With the 'if' being whether or not governments act," she said, adding that the ACCC's work was being closely watched internationally.
Australia's government, which ordered the probe into the firms' influence a year ago as part of wider media reforms said it would consider the ACCC's final recommendations in June. media companies in Australia including Nine Entertainment Co Holdings Ltd NEC.AX and News Corp's NWSA.O local arm - already squeezed by online rivals - welcomed the ACCC suggestions in separate statements on Monday. ($1 = 0.8790 euros)
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Australia passes bill to force tech firms to hand over encrypted data
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