* European Central Bank seen cutting interest rates
* JPMorgan posts 76 percent fall in quarterly profit
* Weak Japan data point to risk of deflation
* U.S. govt close to giving Bank of America new aid-source
* Citigroup shares plunge, Japan's MUFG flags losses
(For more on the global economic crisis, click)
By Sakari Suoninen and David Dolan
FRANKFURT/TOKYO, Jan 15 (Reuters) - Banks in Europe and the United States faced fresh doubts about their ability to ride out a global financial crisis which is expected to prompt a European Central Bank interest rate cut later on Thursday.
JPMorgan Chase & Co's quarterly profit fell 76 percent as it wrote down underperforming loans and set aside more money to cover credit losses after it acquired the banking operations of failed thrift Washington Mutual Inc in September.
The U.S. bank posted a fourth-quarter net profit of $702 million, down from $3 billion a year ago but markets were relieved the figures, which beat forecasts, were not worse.
Shares in Bank of America and Citigroup, two of America's biggest banks, tumbled on Wednesday in a new crisis of confidence over whether they have enough capital to cover losses from toxic assets and global recession.
"The large banks in the United States are not lending, and they're desperate to conserve capital," said Dan Alpert at Westwood Capital in New York. "Banks only remain going concerns because the federal government is topping up their equity."
Mitsubishi UFJ Financial Group, Japan's largest bank, said on Thursday it lost at least $3.2 billion on its securities portfolio in the third quarter, hurt by its heavy exposure to Japan's languishing stock market.
Japanese banks had little exposure to the risky end of the U.S. home loan market, whose collapse prompted the worst financial crisis in 80 years, but they have since been battered by a savage downturn in share prices.
A profit warning from Germany's Deutsche Bank on Wednesday and a prediction HSBC may need fresh capital also shook confidence in two major European banks previously credited with dodging the worst of the fallout.
Citigroup, whose shares dived 23 percent on Wednesday, plans to report quarterly results on Friday and analysts are looking for a fifth straight multibillion-dollar loss.
The bank was also expected to provide details of a reorganisation of the company designed to ensure its survival.
Bank of America is close to receiving billions of dollars of support from the U.S. government, a source familiar with the matter said, as it tries to digest Merrill Lynch, the troubled investment bank it bought on Jan. 1.
Citigroup has already taken $45 billion in government funds while Bank of America and Merrill have received $25 billion.
"The worst of the economic situation is not yet behind us. It looks as if it will continue to deteriorate for most of 2009," Jamie Dimon, chief executive of JPMorgan, told the Financial Times.
ECB TO CUT
Data pointing to a deepening recession and fears more money may be needed to keep banks afloat weighed on financial markets although European shares perked up and U.S. stock futures pared losses, on the back of the JPMorgan results.
The crunch began in 2007, when bank lending dried up because of huge losses on U.S. home loans. It took a sharp turn for the worse with the collapse of U.S. bank Lehman Brothers last September and has now pushed much of the world into recession.
Euro zone policymakers have been slower than counterparts in the United States, Japan and Britain to lower interest rates.
But a sharp German contraction in last year's final quarter and a plunge in euro zone industrial output in November has raised expectations the ECB will cut deeply.
"The data flow does tell a fairly consistent picture, which is unfortunately very downbeat," said Dresdner Kleinwort's Rainer Guntermann, who sees a half point cut to 2.0 percent.
Japanese data showed core machinery orders fell a record 16.2 percent on the month in November to a two-decade low, while wholesale inflation hit a four-year low, flagging the risk of deflation.
Deflation -- when price falls and weak demand feed each other in a vicious downward spiral -- would risk turning recession into depression.
The global slowdown has hit hard in Japan, with big firms like carmaker Toyota and electronics firm Sony slashing production and cutting jobs as export orders dry up.
Nissan Motor Co the country's third-largest car maker, is set to post an annual operating loss, a company source said. The company had forecast a profit. (Writing by Mike Peacock; Editing by Ruth Pitchford)