* Up to 50 intruders said holding staff in protest against losses
* Incident reflects flaring tension in China's financial system
* Many Chinese investors feel duped after suffering losses (Updates throughout with details of situation, quotes, context)
By Brenda Goh and Tom Westbrook
SHANGHAI/SYDNEY, July 21 (Reuters) - Up to 50 investors have intruded into the central Shanghai offices of an Australian currency brokerage and are holding some of its staff against their will, in protest against losses made on currency trades, the brokerage said on Friday.
The incident is the latest reflection of flaring tension in China's financial system, where many investors feel duped after suffering losses from riskier investments in wealth management products.
The Sydney-headquartered brokerage, Union Standard Group Forex (USGFX), said on its official Chinese WeChat account that 30 to 50 people entered its office on Wednesday afternoon and prevented 20 staff members from leaving.
Investors who had used a third-party agent to trade currencies on its platform were blaming USGFX for heavy losses of $2.6 million made on Australia-to-U.S. dollar trades this week and wanted compensation, the brokerage added.
Chief Executive Shay Zakhaim told Reuters the intruders were still holding three of his staff in the office on Friday.
"We are in the middle of a very strange situation, where a number of intruders have come in to our Shanghai office and held some of our staff against their will," the Sydney-based Zakhaim said by telephone.
"Basically we called the local police more than a dozen times, with no luck and no assistance at this stage and we still don't know why. They are just standing outside the building. We're hoping for a quick and safe resolution."
Police were aware of the case, a Shanghai public security bureau official said, but declined to give further information.
Reuters was unable to reach any of the people in the Shanghai brokerage office for comment. A receptionist in the lobby of the luxury shopping mall housing USGFX's office told Reuters she was unaware of the situation.
Angry Chinese investors have taken matters into their own hands before. In 2015, a Chinese investor stabbed the chief executive of a struggling Beijing-based asset management company after losing his investment.
Images on USGFX's WeChat account showed people in casual clothes lounging on sofas and meeting rooms in the office. In one image dated to the early hours of Thursday, people slept on the sofas and floors.
The brokerage offers online trading platforms for clients to trade currency and commodities, it says on its website, adding that it is regulated by the Australian Securities and Investment Commission.
The company denied allegations in media reports that it had defrauded investors.
"We have given the agent and clients a detailed explanation but they have rejected USGFX's explanations," it said on WeChat, adding that the clients sought full compensation. "USGFX will not accept, nor compromise." ($1=6.7653 Chinese yuan)