* HSH could play specialist role in bigger bank
* State of Hamburg looking at all options for HSH
* State eyes own rescue model for HSH, Berlin plan costly
By Jan Christoph Schwartz
FRANKFURT, June 25 (Reuters) - The city state government of Hamburg said it is weighing merging troubled regional lender HSH Nordbank with other German state-backed landesbanks.
"It could be that HSH becomes a segment in a bank for the German states and takes responsibility for ship financing and business in the core region of northern Germany," Hamburg government head Ole von Beust told Reuters in an interview.
"We are looking at all options," von Beust said, adding that current discussions on the bank's future also included keeping it independent, albeit in a much-reduced form.
Hamburg and the neighbouring state of Schleswig-Holstein will soon hold a combined 85 percent stake in HSH after they backed a 3 billion euro capital hike for the ship financier in May.
Another major shareholder, U.S. investor J.C. Flowers, did not participate in the capital hike, resulting in the watering down of his stake to below 10 percent from around 27 percent.
Hamburg and Schleswig-Holstein have also agreed to provide 10 billion euros in guarantees to HSH, which needed additional capital after assets tied to subprime mortgages dramatically fell in value.
Schleswig-Holstein earlier this week ruled out providing any more cash or guarantees to HSH.
Von Beust distanced himself from the federal government's plans for parking the risky assets accumulated by Germany's landesbanks, which are regional state-backed lenders, saying Berlin's model may prove too expensive.
"We are working on creating our own rescue model," he said.
Hamburg is not alone in seeking an alternative to Berlin's 'bad bank' concept.
The state of Hesse has rejected the idea for its lender Helaba, as has Lower Saxony for NordLB.
The states of Baden-Wuerttemberg and Bavaria have also expressed scepticism over Berlin's plans when it comes to their lenders, LBBW and BayernLB, which the two states have backed with billions of euros in emergency support.
Von Beust said he was confident HSH would pull through.
"The outcome of the stress scenarios has shown that the bank can get through with the capital it has," he said.
(editing by John Stonestreet)