UPDATE 1-RESEARCH ALERT-Deutsche Bank downgrades Commerzbank

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Sept 2 (Reuters) - Deutsche Bank downgraded Commerzbank (CBKG.DE) to "sell" from "hold," saying its acquisition of Dresdner Bank was financially not compelling, given the execution risk related to the integration process and that the deal will add to earnings only from 2012 onwards.

However, the deal is strategically attractive and is a milestone "in domestic consolidation and deserves accolades for its bravery," Deutsche said.

UBS, which cut its price target on Commerzbank stock to 19.50 euros from 22 euros, concurs that while the deal is a strong strategic fit for Commerzbank, the terms appear unappealing and risks remain high.

Commerzbank's stock might be at a risk of being "dead money" for a considerable period, given adverse operating conditions, a prolonged and risky merger process that seems to leave little room for positive surprises over the next quarters, UBS added. It kept a "neutral" rating on the stock.

Deutsche Bank said risk factors related to Commerzbank include its exposure to capital markets activity through its market positions in securities and real estate finance, expectations on returns of recent acquisitions, especially Dresdner Bank, and its capital management.

Deutsche cut its price target on the stock to 16.50 euros from 22 euros.

On Sunday, Commerzbank agreed to buy Dresdner Bank from Allianz (ALVG.DE) in a $14.5 billion all-German deal that will break the country's banking mould. [ID:nL1281364]

Commerzbank said it will buy its competitor in two steps, taking 60 percent this year and the rest in 2009.

Shares of Commerzbank were trading at 18.10 euros by 1049 GMT on Tuesday. (Reporting by Ramya Dilip in Bangalore; Editing by Himani Sarkar)