* ACCC says Facebook, Google dominate online ad and news display
* Recommends new regulator to scrutinise their behaviour
* Algorithms governing news, ad display lack transparency -ACCC (Adds details on ACCC proposals, background)
SYDNEY, Dec 10 (Reuters) - Australia's competition watchdog on Monday recommended a new regulatory body be set up to monitor tech giants Facebook Inc and Alphabet Inc's Google and their dominance of the online advertising and news markets.
The Australian Competition and Consumer Commission (ACCC) said in a preliminary report on the U.S. firms' market power that extra oversight was justified to ensure advertisers were treated fairly and the public access to news was unfettered.
The report, ordered by the government a year ago, is being closely watched as lawmakers around the world wrestle with the powerful tech firms' role in public life and their influence on everything from privacy to disinformation and traditional media.
It follows moves by Australia last week to compel tech firms to help security agencies access private user data.
Facebook and Google's algorithms governing the display of advertisements lacked transparency, the ACCC said in its report, giving the firms "both the ability and incentive to favour their own related businesses" ahead of advertisers'.
Similarly, the companies have usurped traditional publishers as news distributors, which has both hurt incumbent media companies and made it harder for readers to find accurate reports, the regulator found.
"Consumers face a potential risk of filter bubbles, or echo chambers, and less reliable news on digital platforms," ACCC Chairman Rod Sims said in a statement.
The ACCC has suggested that a new regulator be given investigative powers to examine how the companies rank advertisements and news articles.
Facebook and Google had no immediate response, although both firms say they are committed to tackling the spread of fake news.
Australia's government ordered the probe into the firms' influence as part of wider media reforms, amid growing concern for the future of journalism and the quality of news following years of declining profits and newsroom job cuts.
Like their rivals globally, Australia's traditional media companies have been squeezed by online rivals, as advertising dollars have followed eyeballs to digital distributors. (Reporting by Tom Westbrook in SYDNEY and Devika Syamnath in Bengaluru; Editing by Peter Cooney and Stephen Coates)
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