Commerzbank weighs cuts to London investment bank activities - sources

* Bank considers moving about half London FIC staff - sources

* No final decision made yet on London - sources

* Commerzbank (Xetra: CBK100 - news) says remains committed to all client services (Adds background, context)

By Arno Schuetze

FRANKFURT, Oct 9 (Reuters) - Germany's second-biggest lender Commerzbank AG is considering cutting back its fixed income and currencies (FIC) business in London as it adjusts to declining demand, two sources familiar with the matter said.

The bank plans to shift around half of its roughly 250 FIC staff in London - who have already seen a headcount reduction of about 20 percent this year - to Frankfurt, said two sources who declined to be named because they are not authorised to speak to the media.

Like all investment banks, the bank is suffering from sluggish demand for products in areas such as interest rate hedging and forex hedging, as interest rates linger at historic lows and market volatility remains subdued.

"An exact number has not yet been decided," one of the sources said, adding that between 40 and 60 percent of London FIC staff may be affected. "Many London-based employees will not want to move to Frankfurt and (will) likely leave the company."

Commerzbank declined to comment on any possible job cuts but said no change in services for clients was under consideration.

"London remains key to Commerzbank's international operations and the investment bank's offering to clients remains unchanged across all asset classes," a spokeswoman said in a written statement.

After completing a takeover of rival Dresdner Bank in 2009, Commerzbank slashed investment banking staff and has seen its headcount in that area hover around 1,800 since.

CLIENT BASE

The bank aims to maintain a division that can meet the needs of German industry, its main client base, without incurring the costs and risks carried by bigger rivals.

Commerzbank competes primarily with Deutsche Bank AG (Xetra: 514000 - news) , Germany's largest lender and Europe's self-described "last man standing" in global investment banking.

Commerzbank, which received an 18 billion euro ($23 billion) government bailout in 2009, has sold underperforming assets and slashed its balance sheet in preparation for a health check of the sector, run by the European Central Bank (ECB) and due to be published later this month.

Although the bank's chief executive Martin Blessing has won praise for leading an ambitious turnaround plan, Commerzbank is still one of the few European banks tipped by some analysts to fall short of the capital demands set in the ECB test.

Commerzbank's investment banking division, of which FIC is part, saw revenue slip to 505 million euros last year from 639 million in 2010.

Separately, Commerzbank is cutting between 60 and 70 FIC staff at its Frankfurt home base, a "fine tuning" that is not part of group-wide cost-cutting measures, the people familiar with the process said.

In July, sources familiar with Commerzbank said the lender was widening the scope of its cost-cutting programme and planned to shed more than 450 jobs on top of the 5,200 already announced.

($1 = 0.7866 euro) (Editing by Thomas Atkins and David Holmes)