* Loss-making banks Shinsei, Aozora to create No.6 Japan bank
* Merged bank may take more government bail-out money
* Analyst: Questions remain about long-term strategy
* Shinsei, Aozora shares up 1.3 pct (Adds company announcement, details)
By David Dolan
TOKYO, July 1 (Reuters) - Japan's Shinsei Bank plans to buy rival Aozora Bank in a deal that brings together two loss-making lenders in hopes of building a stronger bank that can return to growth in both retail and corporate banking.
Combining the two lenders, both backed by U.S. investors and burned by high-risk investments in the global financial crisis, will create Japan's sixth-largest bank with assets of 18 trillion yen ($186 billion).
The merged entity will apply for public money to shore up its depleted capital if necessary, said Norito Ikeda, a former head of a regional lender picked to head the new lender.
Aozora is majority owned by Cerberus Capital Management while Shinsei is about one-third owned by buyout firm JC Flowers and Co.
Shinsei would take a 58 percent stake in the new bank, based on Reuters' calculations using only common shares less treasury shares, and the combined bank would have Tier 1 capital ratio of 8 percent as of the end of March.
Aozora brings to the merger close ties with Japan's regional banks but an analyst questioned the rationale.
"The merger is on balance positive, but there are a number of question marks about current-year profit and the strategic direction of the new group over the longer term," said Jason Rogers, a credit analyst at Barclays Capital in Singapore.
Both banks are descended from lenders nationalised during Japan's 1990s banking crisis.
They were later sold to funds but have struggled to carve a niche for themselves in Japan's competitive lending market.
They turned to overseas investments to compensate for slim profits at home but between them lost 385.6 billion yen in the previous financial year.
The two banks last week acknowledged for the first time that they were in merger talks after Japanese media reported earlier that disagreements between their major shareholders had sidelined the discussions.
The new bank would overtake Chuo Mitsui Trust Holdings as Japan's sixth-largest in terms of assets.
Shares of both Shinsei and Aozora closed up 1.3 percent ahead of the announcement. ($1=96.81 Yen) (Additional reporting by Mayumi Negishi; Editing by Chris Gallagher)