UPDATE 1-Italy's Banco BPM says no tie-up talks with UniCredit

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MILAN, Sept 24 (Reuters) - Italy’s third-largest bank Banco BPM is not in contact with bigger rival UniCredit over a potential merger, a Banco BPM spokeswoman said, dismissing a press report.

Italian daily MF reported on Thursday rumours about intensifying contacts between UniCredit and Banco BPM over a possible tie-up.

“There are no talks under way,” a Banco BPM spokeswoman said.

A spokesman for UniCredit said the bank’s policy was never to comment on press speculation.

Expectations are rising about further consolidation in Italy’s banking sector, stoked by Intesa Sanpaolo’s takeover of smaller peer UBI Banca earlier this year and the Treasury’s search for a buyer for state-owned bank Monte dei Paschi.

Both UniCredit and Banco BPM have been tipped as potential partners for Monte dei Paschi, which the Treasury needs to re-privatise quickly after a 2017 bailout.

The Treasury is weighing options but any deal at present is hindered by Monte dei Paschi’s legal risks and the need to complete by December a bad loan spin-off plan.

Banco BPM has denied any interest in Monte dei Paschi.

Following Intesa’s surprise move, UniCredit and Banco BPM held a meeting before the summer over a potential combination, a person familiar with the matter told Reuters previously.

The two banks would be a good fit geographically thanks to Banco BPM’s roots in the industrial Lombardy region, bankers say.

Some of their local shareholders would view a combination favourably, another two people with knoweldge of the matter had said.

Merger speculation lifted Banco BPM’s shares 6% on Thursday, while UniCredit gained 3%, outperforming a 1.9% rise in the sector. (Reporting by Andrea Mandala; editing by Valentina Za and Mark Potter)