UPDATE 1-Baer dismisses report of possible Madoff fine

* Baer says report "defamatory" and "unfounded"

* Baer says did not break any rules

* Shares down 2.2 pct

(Adds details)

ZURICH, July 6 (Reuters) - Julius Baer (BAER.VX) dismissed on Monday a newspaper report that it faces a fine in Spain of about 300 million Swiss francs ($276 million) relating to losses from the Madoff fraud, calling it "unfounded" and "defamatory."

Swiss Sunday paper SonntagsZeitung, citing a Madrid law firm, reported Baer faced the fine but the bank said "the claims put forward in the article ... are unfounded and of defamatory nature" and threatened legal action to quash the claim.

A Baer spokesman said the bank could not comment on client relationships and always acted according to national regulations.

"Due to banking confidentiality, we are not in a position to make any comments in regard to alleged or real client relationship," the bank said.

"However, please rest assured that Bank Julius Baer always acts in full compliance with applicable rules and regulations."

SonntagsZeitung said lawyers Cremades & Calvo-Sotelo are representing Baer clients who lost millions in imprisoned U.S. financier Bernard Madoff's $65 billion investment fraud.

The paper said Baer employees had travelled to Spain and recommended and sold funds to clients who invested with Madoff.

Shares in Julius Baer were down 2.2 percent at 40.46 Swiss francs against a 2 percent fall in the European banking index .SX7P at 0750 GMT. (Reporting by Sam Cage and Lisa Jucca; Editing by Erica Billingham) ($1=1.087 Swiss Franc)