UPDATE 1-Bail plea failure keeps K1 founder in jail

* Court rejects diplomatic immunity claim

* Lawyers for Kiener say banks on "witch hunt"

* Say Kiener believes money is not lost

(Recasts to add prosecutor comment, adds detail, background)

By Edward Taylor and Alexander Huebner

FRANKFURT, Nov 9 (Reuters) - The founder of Germany's K1 hedge fund group remained behind bars on Monday after his lawyers failed to convince a judge he was the victim of a witch hunt and had immunity as a diplomat for an African country.

Lawyers for Helmut Kiener denied he committed fraud and sought his release on bail, arguing he was a diplomat for the West African nation of Guinea-Bissau, documents appealing against his arrest showed.

Kiener is suspected of fraud and breach of trust [ID:nLT702092] in a case in which Barclays (BARC.L) and BNP Paribas (BNPP.PA) may have lost millions of dollars and which prosecutors say featured lavish personal spending on planes, a helicopter and luxury properties.

"The appeal for release was rejected," said Dietrich Geuder, a spokesman for the prosecutor's office in Wuerzburg, Germany. After a judge at the district court rejected the appeal, the case moves to a state court, the spokesman said.