UPDATE 1-German bank HSH currently set to pass ECB health check

* HSH Nordbank clears AQR, stress-test hurdles - sources

* ECB says any test inferences would be highly speculative

* HSH to get results from future regulator ECB on Thurs (Writes through with industry context)

FRANKFURT, Oct 22 (Reuters) - German lender HSH Nordbank , long seen at risk of failing European Central Bank tests of its financial stability, is currently set for a clean bill of health, three financial sources familiar with the situation said on Wednesday.

HSH was seen as the German lender most likely to fall short in the checks on European banks being run by the ECB and the European Banking Authority (EBA), especially after the bank itself acknowledged it was at risk of failure.

The official results of the tests are due to be made public on Sunday. But participants in the exercise received “partial and preliminary” indications of their performance earlier this month in a so-called supervisory dialogue led by the ECB.

HSH, which is highly exposed to the troubled shipping sector, was thoroughly checked by regulators and its core capital strength remained above the 5.5 percent minimum needed even in a tough economic crisis simulation that was part of the tests, one of the sources said.

HSH declined to comment and the ECB said it would not comment on individual institutions or speculation.

“Any inferences drawn as to the final outcome of the exercise would be highly speculative until the results are final on Oct. 26,” it said in an emailed statement.

HSH, which is 85 percent owned by the states of Schleswig-Holstein and Hamburg, will receive the result of its exam on Thursday.

If those results were to differ sharply from the bank’s current stance and HSH were to require additional capital, it could pose a grave threat to the finances of its state owners, especially Schleswig-Holstein.

In addition, if its local government owners did step in, the European Commission could order HSH to close down as it has already received 13 billion euros ($16.8 billion) in guarantees and capital from taxpayers.

In 2012, HSH reduced its state guarantees by 3 billion in expectation of an improvement in business. But as the shipping crisis dragged on, HSH had to ask its owners last year to restore the full level of guarantees.

European regulators temporarily approved the move, but have not yet announced a final decision, which is expected in the first quarter of 2015.

Owned by states, municipalities and local savings banks, “landesbanks” are now struggling to find a viable business model as they seek to reshape themselves for a more modest future.

Landesbanks were for years able to take high-risk bets on international markets, relying on state guarantees to borrow cheaply and backstop potential losses.

But in 2005 the landesbank groups -- which at the time supplied nearly a quarter of business loans in Germany -- lost this valuable backstop as the European Union intervened.

The European Banking Authority, the EU watchdog coordinating the bloc wide stress test, said the results won’t be final until they are endorsed on Sunday just prior to publication. It had no comment on individual lenders. (Reporting by Andreas Kroener, Alexander Huebner, and Andreas Framke; writing by Jonathan Gould; editing by Keith Weir)