* EU says Arcandor does not qualify for German bailout fund
* Econ min says any EU-approved aid would cause big cuts
* Sources say smaller banks resist extending credit for now
(Adds comment from German govt officials, detail)
By Ilona Wissenbach and Eva Kuehnen
BRUSSELS/FRANKFURT, June 3 (Reuters) - Arcandor's chances of receiving state aid faded on Wednesday after the European Commission said the stricken German retail and tourism group would not qualify for the German government's bailout programme.
A spokesman for the European Commission said on the basis of preliminary information that it had received it appeared that Arcandor was already in difficulties before July 1 and would not qualify for state aid under the temporary framework.
However, the firm could still apply for aid under the usual conditions applicable in such cases, he added.
Germany Economy Minister Karl-Theodor zu Guttenberg joined the chorus of bailout sceptics and said any aid approved by the EU would probably involve huge job losses and could lead to "capacity cuts" of at least 30 percent at the Essen-based firm.
Guttenberg has repeatedly stressed the need to consider the benefits of insolvency in cases such as Arcandor.
Shares in Arcandor erased earlier gains and were down by some 1.6 percent at 1.91 euros by 1512 GMT.
Germany has set up a 100 billion euro ($142.9 billion) fund to provide temporary aid to companies hit by the crisis.
However, whether to grant aid to Arcandor, whose troubles predate the crisis, is a controversial issue that has become increasingly politicised as the country gears up a federal election in September.
A government committee that examines applications for state aid met on Wednesday to discuss Arcandor's case. Guttenberg said it had not reached any decision.
Arcandor, which has warned it could go bust within days if it does not get more than $1 billion in state assistance, said it would review the EU's comments and may consider alternative ways for government support if there were any.
POLITICAL ISSUE
The company has asked the German government for 650 million euros in loan guarantees and a 200 million euro loan to secure long-term financing and help fund a five-year turnaround plan that will see it move downmarket and hive off loss-making businesses.
Financial sources told Reuters on Wednesday that refinancing talks among Arcandor's creditor banks had stalled as smaller banks in the group were resisting extending a 650 million euro credit line that runs out on June 12.
Germany's Foreign Minister Frank-Walter Steinmeier, a Social Democrat who will challenge conservative Chancellor Angela Merkel in September's election, said insolvency would be the worst solution for Arcandor's staff.
He said he would continue talks in the next couple of days to find an overall solution for Germany's department stores.
Arcandor's rival Metro has suggested combining the two retailers' department store chains to create a more profitable national champion.
Arcandor is open to such an idea but has said it would still need state aid to secure its survival. (Reporting by Patricia Uhlig, Philipp Halstrick, Eva Kuehnen, Nikola Rotscheroth in Duesseldorf, Ilona Wissenbach in Brussels and Noah Barkin, Madeline Chambers and Markus Wacket in Berlin; Editing by Rupert Winchester)