UPDATE 1-IKB owner plays down talk of higher subprime losses

(Adds report on banks interested in taking IKB stake)

FRANKFURT, Aug 5 (Reuters) - The biggest shareholder of IKB, a German lender stricken by the U.S. subprime mortgage crisis, has played down a report IKB (IKBG.DE) could lose more than the 3.5 billion euros ($4.8 billion) banks have set aside in a rescue package.

Responding to an article claiming that the losses could mount to 5 billion euros, government-owned lender KfW told Reuters on Sunday that such estimates were guess-work.

"Talk of bigger numbers is complete speculation," said a spokesman for the bank, which owns 38 percent of IKB.

IKB, which lends to small- and mid-sized firms, has become Europe's highest-profile casualty so far of the crisis in U.S. subprime mortgage market.

Last week, a source told Reuters that banks funding a rescue effort expected IKB to lose up to a fifth of its roughly 17.5 billion euro investment in subprime, adding that an even higher loss was possible.

If the losses top this, however, it is unclear who will foot the additional bill to keep IKB afloat. German news magazine Focus will report in its Monday edition that the losses could tip 5 billion euros.

IKB BUYERS MOOTED

The Financial Times Deutschland, citing informed sources, reported in an advance release of an article to run in its Monday edition that HypoVereinbank HVMG.DE and Commerzbank (CBKG.DE) were both interested in taking buying a stake in IKB.

HypoVereinsbank declined to comment on the report. Commerzbank could not immediately be reached for comment.

Last week, the revelation of the scale of IKB's problems panicked investors, who feared other banks could be swallowed into the subprime crisis.

It prompted the Bundesbank president to repeatedly call for calm over the affair, which watchdog Bafin said threatened to snowball into the biggest banking crisis in Germany in more than 75 years.

To stop IKB unravelling, German banks have clubbed together to provide 3.5 billion euros to cover the lender's potential losses from the subprime crisis. This represents about a fifth of IKB's total exposure -- what the banks expect it to lose.

Default rates on mortgages to high-risk, or subprime, borrowers in the United States have been creeping up, leading to problems for lending banks as well as those sharing the risk.

Deutsche Bank (DBKGn.DE), worried about IKB's subprime exposure, had cut a credit line to the bank, a move which sparked the crisis and spurred watchdog Bafin into action.

Bafin brokered a deal with the German government that KfW would guarantee 8 billion euros of obligations for IKB which stemmed from an investment fund IKB managed.

This was designed to give the bank leeway to sell its investments in the subprime . Subsequently KfW put up the lion's share of a 3.5 billion euro fund to cover IKB's potential losses when it does sell.