UPDATE 1-Commerzbank falls on talk of possible share issue

Fri Jan 11, 2013 7:01am EST

* Shares drop 4.3 percent in heavy volume

* Commerzbank declines to comment

* Strong sector performance may raise appeal of share sales (Adds analyst comment, background)

LONDON, Jan 11 (Reuters) - Shares in Commerzbank shed 4.3 percent in heavy volume on Friday, with traders citing talk of a possible share issue for Germany's second biggest bank.

Commerzbank declined to comment.

Volume in Commerzbank stock was 138 percent of its 90-day daily average by 1108 GMT, compared with 41 percent traded on the FTSEurofirst 300.

"There is a lot of appetite for bank shares at the moment," Edward Firth, head of European Banks at Macquarie, said.

"So it seems there would be every reason for some of the weaker ones to take advantage of that ... Commerzbank would seem to fit that category."

Belgian banking and insurance group KBC sold 1.25 billion euros ($1.65 billion) of new shares to shore up its capital position last month at a 9.4 percent discount to the market. KBC shares dropped 7 percent immediately after the issue.

European banks have enjoyed a 47 percent gain since early June 2012, compared with a 22 percent rise on Europe's STOXX 600, as confidence in the sector has improved in the wake of the European Central Bank's pledge to do whatever it takes to save the euro.

The rights issue speculation also helped to knock the wider banking sector, which fell 0.2 percent.

Commerzbank, which received an 18 billion-euro government bailout in the financial crisis, missed third-quarter profit forecasts.

The bank's core Tier 1 ratio - a measure of a financial strength - was 12.2 percent at the end of September 2012. The bank has said it expects a ratio "comfortably above" the 9 percent level this year, thus meeting new bank capital rules, known as Basel III. ($1 = 0.7568 euros) (Reporting By David Brett; Additional reporting by Alexander Huebner in Frankfurt. Editing by Jane Merriman)