By Tom Polansek

CHICAGO, Nov 1 (Reuters) - Monsanto Co put on hold the launch of a chemical designed to be applied to crop seeds on Wednesday following reports it causes rashes on people, in the latest instance of complaints about a company product that was approved by U.S. environmental regulators.

Monsanto froze plans for commercial sales of the product called NemaStrike, which can protect corn, soybeans and cotton from worms that reduce yields. The company said it conducted three years of field tests across the United States in preparation for a full launch and that more than 400 people used it this year as part of a trial.

The delayed launch of what Monsanto calls a blockbuster product is another setback for the company, which is already battling to keep a new version of a herbicide on the market in the face of complaints that it damaged millions of acres of crops this summer.

"There have been limited cases of skin irritation, including rashes, that appear to be associated with the handling and application of this seed treatment product," Brian Naber, U.S. commercial operations lead for Monsanto, said in a letter to customers about NemaStrike.

Some users who suffered problems may not have followed instructions to wear protective equipment, such as gloves, company spokeswoman Christi Dixon said.

The company expected NemaStrike to launch across up to 8 million U.S. crop acres in fiscal year 2018, Chief Executive Hugh Grant said on a conference call last month. The product was "priced at a premium that reflects its consistent yield protection" against worms known as nematodes, he said.

The U.S. Environmental Protection Agency (EPA) did extensive evaluations of the product before approving it for use, according to Monsanto, which has described NemaStrike as "blockbuster technology." The agency could not immediately be reached for comment after hours on Wednesday.

"The technology is effective and can be used safely when following label instructions," Monsanto said.

The EPA last year approved use of Monsanto's new version of a weed killer using a chemical known as dicamba on crops during the summer growing season.

Problems have also emerged with the herbicide since the agency's approval. Farmers have complained it evaporates and drifts from where it is applied, causing damage to crops that cannot resist it.

Monsanto, which is being acquired by Bayer AG for $63.5 billion, has said its dicamba herbicide is safe when applied properly and that U.S. farmers failed to follow label instructions. (Reporting by Tom Polansek; Editing by Lisa Shumaker)