UPDATE 2-Deutsche Bank and Commerzbank merger talks are expected to fail - source

Merger talks between Deutsche Bank and Commerzbank are expected to end in failure, although no final decision has been taken, a person with knowledge of the matter said on Thursday.

Germany's top two banks both declined to comment on the merger talks, which have met fierce opposition from the workforce, with unions fearing 30,000 job losses.. German government officials, led by Finance Minister Olaf Scholz, have pushed for a tie-up to create a national banking champion and end questions over the future of both banks, which have struggled to recover since the financial crisis.

Shares in Commerzbank were 1.5 percent lower at 0728 GMT on Thursday, while Deutsche Bank's were up 0.7 percent. Deutsche Bank is expected to provide an update on the status of the talks, now in their sixth week, by Friday at the latest, another official said.

The inability to craft a deal will increase pressure on Deutsche Bank to make more radical changes, such as cuts to its U.S. investment bank that regulators and some major investors have been advocating. Deutsche is already looking at a deal for its asset management unit. A failure of talks is also likely to make Commerzbank vulnerable to a foreign takeover. Both Unicredit and ING Groep have expressed interest in Germany's No. 2 lender, sources have said.

Some major Deutsche Bank investors have questioned the deal's logic and are unwilling to step up with any extra cash to get it done, while credit ratings agencies warn of risks. The European Central Bank would ask Deutsche Bank to raise fresh funds before it gave the go-ahead for a merger, a person with direct knowledge of the matter has said.

The ECB's single supervisory board, which is scheduled to meet on Thursday, has not received a formal application from the banks about a merger, a person familiar with the situation said. But supervisors' discussions would likely emphasise the disadvantages over the advantages, the person said, adding that it looked increasingly improbable that a deal would happen.

Both banks announced the start of formal talks on March 17 and have since been crunching the numbers for a tie-up. Last month, Deutsche Bank Chairman Paul Achleitner said the banks would aim to announce more concrete steps by the time his bank published its earnings on April 26.

Deutsche's first-quarter earnings are expected to show continued weakness, with an expected 75 percent decline in net profit and a 9 percent decline in revenue, according to a consensus forecast posted on the bank's website. (Reporting by Francesco Canepa, Frank Siebelt, Hans Seidenstuecker, Andreas Framke, Arno Schuetze and Tom Sims; Editing by Sabine Wollrab, Tassilo Hummel, Michelle Martin and Alexander Smith)