* The two banks unlikely to raise enough cash from market
* Merger seen blocked by country's international lenders
* Both bank boards to meet Tuesday to decide recap plans
* Together need 15.6 bln euros to boost solvency ratios (Adds finance minister quotes)
By George Georgiopoulos and Lefteris Papadimas
ATHENS, April 8 Two of Greece's biggest banks risk being nationalised after admitting they were unlikely to raise enough cash from private investors and seeing their merger blocked by the country's international lenders.
National Bank bought 84.3 percent of smaller rival Eurobank via a share swap in February, as Greek banks consolidated to survive a debt crisis that has pushed the country's economy into a six-year slump.
But lenders fear the combined entity, with assets of about 170 billion euros ($221.4 billion), will be too big relative to Greece's 190 billion euro economy and make it difficult to sell in the future, prompting the state to halt their integration until a state bank support fund decides their future.
Both banks told the central bank they are unlikely to raise a set portion of their planned share issues from the market, meaning they would fall under the control of the support fund, the Hellenic Financial Stability Fund (HFSF).
Shares of both banks initially fell as much as 30 percent on Monday on concerns their investors would effectively be wiped out if the HFSF takes full control of the lenders.
But Eurobank shares reversed course to gain 25 percent in late trade on talk the bank would make a final push to meet the required private sector participation on its own and stay privately run.
"We will mobilise and try to cover the required 10 percent from the market. I am not saying we will make it, but we will try," a Eurobank executive who declined to be named told Reuters, putting the bank's needs from the private sector at 580 million euros.
Both bank boards will meet on Tuesday to spell out their recapitalisation plans. Together they need 15.6 billion euros to boost their solvency ratios to levels set by the central bank after losses from a sovereign debt writedown.
Greek government officials have said deposits in the banks will be unaffected by the deal's suspension, in a bid to reassure jittery Greeks after a bailout to rescue Cyprus included slapping a levy on deposits.
Finance Minister Yannis Stournaras said the troika of the country's international lenders has not vetoed the deal, adding that the 50 billion euros set aside from the bailout package for the recapitalisation would be sufficient.
"No one has vetoed the National Bank-Eurobank integration. Whether it will take place or not depends on the terms the HFSF will set," Stournaras told lawmakers on Monday.
Under a recapitalisation plan agreed with Greece's international lenders, the HFSF will supply most of the capital the banks need in exchange for new shares and contingent convertible bonds.
But to stay private, banks must ensure private investors buy at least 10 percent of their share offerings. Analysts have warned that Greece's banks will not be able to bounce back immediately despite an injection of billions of euros.
"It will take time for banks to get on a more sustainable footing as the economy continues to shrink. It's too early to expect that credit flows will lift the economy," said Giada Giani, an economist at Citigroup.
If National and Eurobank are nationalised, it would result in about 40 percent Greece's of banking sector being controlled by the state, while the other two major Greek lenders remain privately run.
National Bank's 84.3 percent stake in Eurobank could be diluted down to a low single-digit holding if the HFSF pumps in all the capital it needs.
Rival lenders Alpha and Piraeus Bank have already announced share offerings, aiming to meet the required 10 percent private-sector take up.
Whether NBG and Eurobank will be eventually integrated or run as stand-alone entities will be decided by the HFSF fund after their recapitalisation is completed. If the plan is dropped, Piraeus will emerge as the country's biggest bank.
"The key issue for Greece is to have a well capitalised banking system, willing to lend and get the economy out of free-fall," said economist Ben May at Capital Economics in London.
"From a macro-economic perspective, it doesn't make that much difference if this means having 10, seven or five banks," May said. ($1 = 0.7679 euros) (Additional reporting by Renee Maltezou; Editing by David Holmes and Leslie Adler)