UPDATE 4-After savings pledge, Germany eyes bank shield

(Adds ministry spokesman on "umbrella", details on savings guarantees)

By Matthias Sobolewski and Noah Barkin

BERLIN, Oct 6 (Reuters) - Germany said on Monday it was considering a nationwide "umbrella" to shield its banks from market turmoil as concern mounted in Berlin about the risks of financial contagion for Europe's largest economy.

A day after the government pushed through a rescue of lender Hypo Real Estate (HRXG.DE) and announced a blanket guarantee for private savings deposits, Finance Minister Peer Steinbrueck said a "Plan B" for the German financial sector was under discussion.

Germany has resisted pressure from European partners for an EU-wide rescue package for banks that would mirror the $700 billion plan in the United States and, until Monday, argued that bank troubles should be handled on a case-by-case basis.

But Steinbrueck reversed course on Monday: "I am very much aware that at some point individual solutions are no longer enough," he told reporters in Berlin.

He said Berlin was looking at putting up an "umbrella for Germany as a whole" so it no longer had to go from one case to the next.

Confusion reigned, however, about the specifics of Steinbrueck's plan. When pressed for more detail, his spokesman Torsten Albig told Reuters the minister had not been talking about a general state guarantee for banks, but rather "structures that make it easier to deal with the crisis."

It was the second time in weeks that the ministry appeared to row back on comments made by Steinbrueck. Last week he spoke of an "orderly unwinding" of Hypo Real Estate before abruptly changing tack.

Concerns about the health of the banking sector sent German stocks .GDAXI plunging 7 percent on Monday, in line with drops on other European bourses.

Hypo Real Estate led the decliners, ending down 37 percent, despite an agreement by banks and insurers on Sunday to extend 15 billion euros in new liquidity to the Munich-based lender. Commerzbank (CBKG.DE) was another big loser, down 16 percent.

The German government has taken care in recent weeks to avoid giving the impression it will step in to help each and every financial group that is under pressure. Last Wednesday, Chancellor Angela Merkel declared Berlin could not and would not issue a "blank cheque" for all banks.

But the gravity of the crisis and speed at which it has spread have forced her hand.

"In these days we can feel just how important political action is," Merkel said on Monday in Wiesbaden. "You don't have time to think about the underlying course. The social market economy has rarely been under so much pressure as it is now."

REASSURING PUBLIC