* Says American middle class is "getting hollowed out"
* Warren has targeted Wall Street, advocated for consumers (Adds Trump reaction, paragraph 8)
By Doina Chiacu
WASHINGTON, Dec 31 (Reuters) - U.S. Senator Elizabeth Warren, a liberal firebrand who has taken on Wall Street and traded barbs with Donald Trump, on Monday became the most prominent Democrat to announce a challenge to the Republican president in 2020.
Warren said she had formed an exploratory committee, which will allow her to begin raising money to compete in what is expected to be a crowded Democratic primary field before the November 2020 presidential election.
She said on Twitter she would announce her decision on whether to run early in 2019.
Warren, 69, a senator from Massachusetts since 2013, became one of Trump's fiercest critics during the 2016 presidential race and they have continued to exchange biting insults during his presidency. Trump mockingly refers to her as "Pocahontas" because of her claim to Native American ancestry.
Warren has denounced Trump as an "insecure money grubber" with a platform of "racism, sexism and xenophobia," while Trump has described the former Harvard Law School professor as "goofy" and a "lowlife" with "a nasty mouth."
On Monday, Warren released a video in which she outlined her vision of a path to opportunity for all Americans and charged that the U.S. middle class was under attack from corporate interests. She later elaborated on the theme in an exchange with reporters outside her Cambridge, Massachusetts, home.
"America's middle class is getting hollowed out and opportunity for too many of our young people is shrinking," she said. "So I'm in this fight all the way. Right now Washington works great for the wealthy and the well connected. It's just not working for anyone else."
Trump, in a phone interview with Fox News, said he would love to run against Warren and again ridiculed her assertion of Native American ancestry. Asked if he thought Warren really believed she could defeat him, Trump said: "I don't know, you'd have to ask her psychiatrist."
The Democratic presidential field could eventually include Senators Kamala Harris, Cory Booker and Kirsten Gillibrand, as well as former Vice President Joe Biden. Julian Castro, former President Barack Obama's housing secretary, formed an exploratory committee this month.
Warren welcomed the "strong and growing group of Democrats" making arguments similar to those she is making, saying: "That's how we build a movement. We do it together."
In searching for a candidate to run against Trump, Democrats will grapple with the tension between the party's establishment and liberal progressive wings that flared during the 2016 nominating primaries between former Secretary of State Hillary Clinton and Senator Bernie Sanders, an independent who ran under the Democratic banner.
A Warren candidacy can expect opposition from Wall Street. In the U.S. Senate, she has been a strong voice on financial issues and a self-described defender of the ordinary American against powerful interests.
Following the 2007-2009 global financial crisis, Warren emerged as a leading critic of Wall Street and continues to advocate for stiffer regulation and oversight, including reinstating a rule that would separate banks’ retail business from their riskier investment banking activities.
Warren, a member of the Senate Banking Committee, has fought the Trump administration's efforts to weaken post-crisis financial rules, going as far as to attack moderate Democrats who backed a May rewrite of the 2010 Dodd-Frank reform law.
In a September interview marking 10 years since the financial crisis, Warren was asked about breaking up big banks. "Oh yeah," she told the New York Times. "Give me a chance."
She also has opposed the administration's efforts to undermine the Consumer Financial Protection Bureau, an agency she helped create, and has pressured the Federal Reserve to take a tough line on scandal-hit lender Wells Fargo & Co.
Many of Warren's policy positions have focused on economic inequality. She recently offered legislation calling on the U.S. government to manufacture generic drugs to reduce their cost. In 2017, she joined other senators in a proposal to extend the federal Medicare health insurance program for seniors to include everyone.
Republican National Committee Chairwoman Ronna McDaniel dismissed her as "another extreme far-left obstructionist and a total fraud."
Warren's 80 percent name recognition does not translate into actual support, University of Virginia professor Larry Sabato said.
"Some Democrats swear by her and love her blunt style, while others are put off by her and fear she’d lose to Trump," he said. "Warren has a lot of convincing to do," adding the same is true of many other Democratic contenders.
Warren will begin campaigning soon in some of the states with early presidential nominating contests, a person familiar with her plans said.
Trump's use of Pocahontas, a 17th century Native American woman associated with the British colony in Jamestown, Virginia, was aimed at drawing attention to a controversy over her heritage raised during Warren’s 2012 Senate race.
Warren in October released a DNA analysis she said supported her assertion that she had Native American lineage.
Trump’s reference has drawn criticism from some Native American groups, while others criticized Warren for trying to lay claim to a tribal heritage.
Reporting by Doina Chiacu; Additional reporting by Michelle Price and Mohammad Zargham; Editing by Bill Trott and Peter Cooney