* Guarantees for WestLB run out at end of month
* WestLB needs 3-5 billion additional funding
* WestLB is significant, so will be saved -analyst
(Adds detail, background, WestLB comment)
By Jonathan Gould and Edward Taylor
FRANKFURT, Nov 24 (Reuters) - Crisis-rocked German state-backed lender WestLB faced a down-to-the wire search for funds to help unload toxic assets as its savings bank owners balk at more support, fuelling talk of consolidation.
The heads of WestLB's public-sector peers, Germany's regional landesbanks, urgently convened in Frankfurt late on Monday as a deadline loomed for WestLB's current set of financial guarantees, due to expire at the end of the month.
The results of that meeting are not yet known but industry observers and analysts say that the brinksmanship this week is all about who will stump up the cash.
"It's a significant bank so it will have to be saved," said Merck Finck analyst Konrad Becker, a move that could prompt a merger with a peer but one that may not make sense.
"A merger between a bank with a chronic illness, a bank on its deathbed, and a slightly sick bank won't bring about a healthy lender," Becker said.
Currency traders said the euro fell on the German media report that the majority owners of WestLB were threatening not to support its requirement for more capital.
Impact spilled over to sterling too, which is considered a higher-risk currency and tends to suffer when investor risk appetite takes a knock.
"Risk appetite is looking soft today ... on the back of negative news on the various parts of the banking sector," said Jeremy Stretch, strategist at Rabobank in London.
Duesseldorf-based WestLB, owned by the state of North Rhine-Westphalia and local savings banks, is seeking to offload around 85 billion euros in risky assets to a "bad bank" and create a healthy core bank that will focus on corporate customers.
But for that it needs more funding, and its savings bank owners have said it must look elsewhere for the 3-5 billion euros ($4.49-$7.49 billion) in additional cash it needs.
"We are not prepared in principle" to make additional funding available, Rolf Gerlach, president of the WLSGV savings bank association that controls a 25 percent stake in WestLB, told German daily Boersen-Zeitung in an interview published on Tuesday.
A WestLB spokesman said the bank was in constructive talks with German bank rescue fund Soffin and WestLB's owners but said it had not sought support from the Landesbank Assistance Fund.
Any additional bailout for WestLB would likely require European Union approval.
The crisis meeting of landesbank chiefs follows remarks made by EU competition commissioner Neelie Kroes, who last week said she wanted to see an end to the WestLB "saga".
Brussels has already demanded a change in the ownership structure at WestLB.
Since February 2008, WestLB has received 11 billion euros in guarantees from Soffin and the bank's owners to finance its sweeping restructuring programme.
Sources told Reuters this month that Berlin looked set to okay a capital injection into WestLB.
A government source told Reuters this month that an effort by Soffin to shore up WestLB's capital base was "anything but fanciful," adding that a 3 billion-euro injection was under discussion.
A second source close to the country's governing coalition said a capital injection by the state was "very likely".
(Additional reporting by Mike Peacock in London; Editing by David Cowell) ((michael.shields@thomsonreuters.com, Reuters Messaging: michael.shields.reuters.com@reuters.net; +49 69 7565 1266)) ($1=.6679 Euro)