UPDATE1-Appeals court rejects banks' bid over Clear Channel

(Adds background about cases in paragraphs 5-8

NEW YORK, April 16 (Reuters) - A Texas state appeals court on Wednesday refused to dismiss a lawsuit by Clear Channel Communications Inc (CCU.N) and two private equity firms to force a group of banks to fund a $20 billion buyout of the largest U.S. radio station operator.

In a brief order, a three-judge panel of the Texas Fourth Circuit Court of Appeals in San Antonio concluded the banks, which wanted the case dismissed, were not entitled to the relief they sought.

Last Friday, Bexar County Judge Joe Brown Jr. set a June 2 trial to determine whether Thomas H Lee Partners (THL) and Bain Capital could obtain the funding needed for the buyout.

Clear Channel and the buyout firms claimed the banks, led by Citigroup Inc (C.N), balked at providing financing after credit markets deteriorated last year.

THL and Bain filed complaints in New York and Texas against Citigroup Inc (C.N), Morgan Stanley (MS.N), Credit Suisse Group (CSGN.VX), Royal Bank of Scotland Group Plc (RBS.L), Deutsche Bank AG (DBKGn.DE) and Wachovia Corp WB.N, seeking to force them to fund the buyout.

Clear Channel joined in the Texas suit, but not the New York case.

In the Texas case, Clear Channel, THL and Bain claim "tortious interference" with the deal, which "if allowed to continue and succeed, could result in immeasurable damages" exceeding $26 billion, according to the suit.

In New York, the private equity firms are seeking "specific performance" of a commitment letter that details the plans to fund the deal. Under specific performance, one party asks a judge to order another party to stick to a contract.

The banks argue they had not yet agreed to a number of financing issues with the private equity firms when they were sued. (Reporting by Jonathan Stempel and Megan Davies; editing by Phil Berlowitz/Jeffrey Benkoe)