UPDATE 2-Irish Fin Min heralds bottom of property slump

* ECB backs "bad bank" but warns on pricing

* Cutting payouts to banks could still hit taxpayer-Fin Min

* Full nationalisation would trigger Irish downgrade-Fin Min

* Govt may take majority stake in some banks-Fin Min

* Bank shares finish down

(Adds more detail, ECB opinion, updates shares)

By Carmel Crimmins

DUBLIN, Aug 31 (Reuters) - Ireland's bruising property crash may be reaching its finale, Finance Minister Brian Lenihan said on Monday, the first official to herald the end of a slump that has shredded the former "Celtic Tiger" economy.

Lenihan is trying to shore up support for a "bad bank" to deal with the legacy of the property collapse and the prospect of a market stabilisation would make his proposal of paying lenders for their risky loans more palatable to taxpayers.

"We really do need to banish our devils ... this suggestion that we have further to go down and further and further and further," Lenihan told a parliamentary committee.

"The (property) yield is at an all-time high relative to the assets, which is a clear, objective economic indicator that we are approaching the trough."

After quadrupling in value in the ten years to 2007, Irish house prices have fallen by around a quarter since then, according to the permanent tsb/ESRI price index [ID:nDUB001050] but that is a lagging indicator and there is evidence that prices for some properties have halved.

Lenihan has said the "bad bank" will pay Allied Irish Banks (ALBK.I), Bank of Ireland (BKIR.I) and non-listed lenders a price for their risky property loans that reflects their "long-term economic value", somewhere between current bargain basement valuations and propety bubble highs.

The European Central Bank urged caution on Monday on how much Dublin pays for the risky property loans, whose nominal value of 90 billion euros is equal to around half the country's Gross Domestic Product (GDP). [ID:nLV307984]

The government's junior coalition partners, the Greens, want the banks to continue to shoulder some of the risk from the loans even after they are transferred to the National Asset Management Agency (NAMA).

Mindful of the need for Green Party support to get his NAMA legislation through parliament in the autumn, Lenihan said he was considering a number of recommendations.

But he said proposals for cutting the amount of money the government will pay upfront could still hit the taxpayer.

"Proposals made to date include giving the banks equity in NAMA," he said in a hearing that took four and a half hours.

"This proposal has difficulties of its own, including how it would be valued on bank balance sheets, which could indirectly necessitate the further injection of state capital.

"This proposal would also give the banks access to the upside at the expense of the taxpayer but the risk sharing proposals do merit further consideration."

CREDIT RATING DOWNGRADE

Political analysts expect Lenihan to get legislation creating NAMA past parliament but uncertainty around what sort of changes he will be forced to make to get political approval weighed on Irish lenders on Monday.

Bank of Ireland closed down 8 percent and Allied Irish Banks (ALBK.I) finished 5 percent weaker, underperforming a general index .ISEQ that was 0.6 percent weaker.

Opposition political parties support nationalising the top two lenders but Lenihan rejected such a proposal outright.

"Nationalising the entire banking system would inevitably result in Ireland's sovereign credit rating being downgraded from AA," he said.

"This would result in increased debt service costs on the national debt which the country can ill afford when it has so many other pressing calls on its resources."

Dublin may end up with a majority stake in Allied Irish Banks and/or Bank of Ireland depending on the size of the writedown they are forced to take on the loans they will transfer to NAMA.

Lenihan will detail the rough size of the writedown and the capital impact on each bank when he opens debate on the NAMA legislation on Sept. 16.

(Editing by Ron Askew and Ron Askew)