CREDIT WRAPUP 2-Reinsurance giant takes hit, market jitters back

(Recasts, adding downgrade of Citibank shares, money market rates)

By Mike Peacock

LONDON, Nov 19 (Reuters) - The world's largest reinsurer reported on Monday a $1 billion hit from the subprime mortgage crisis as the head of Germany's biggest bank said market jitters had returned with a vengeance.

The scramble to find a buyer for stricken British mortgage lender Northern Rock NRK.L, meanwhile, showed little sign of reaching a resolution.

Swiss Re (RUKN.VX) said it expected a 1.2 billion Swiss franc ($1.07 billion) write-down from exposure to credit default swaps, sending its shares diving eight percent and making it the first reinsurer to suffer major damage from the crisis.

The losses stemmed from protection Swiss Re sold to a client against a fall in the value of a portfolio.

Severe ratings downgrades by credit ratings agencies and the lack of a liquid market for the securities "has resulted in a significant and material reduction of the value of the underlying assets", Swiss Re said.

The head of Deutsche Bank (DBKGn.DE) said financial market nerves had been stretched taut again following recent write-downs at a string of major U.S. banks.

"The latest announcements of further and in some cases significant write-downs at a number of U.S. banks as well as the ongoing uncertainty about losses for some market players who haven't yet outlined their numbers have increased nervousness noticeably," said Josef Ackermann.

Top banks including Citigroup, Merrill Lynch and UBS have announced colossal losses and write-downs in the past month.

Goldman Sachs put Citibank's shares on its "sell list" on Monday. America's largest bank said earlier this month it expected to write off up to $11 billion in the fourth quarter.

Goldman said it was assuming a $11 billion write-off in the fourth quarter and an additional $4 billion early next year.

Markets were edgy, in contrast to last week when the series of bank write-offs were generally greeted by rallies in their shares on the basis that at least the damage was known.

On the money markets, interbank lending rates rose, with two- and three-month sterling rates both at their highest levels in two months as traders continued to pay a premium for short-term funding.

"Markets are in depressive mood," said Justin Urquhart Stewart of 7 Investment Management.

With subprime U.S. mortgages -- lent to people ill-equipped to pay them back -- bundled up into complex financial products and sold on around the globe, uncertainty about where the exposure lies remains intense.