European shares fall as Deutsche Bank leads financial stocks lower

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* Deutsche Bank (LSE: 0H7D.L - news) shares skid to record low

* Lanxess (LSE: 0H7I.L - news) surges after announcing Chemtura (Euronext: CHMT.NX - news) acquisition

* Clinton vs Trump TV debate due later

By Danilo Masoni and Sudip Kar-Gupta

LONDON, Sept 26 (Reuters) - European shares fell on Monday, weighed down by major banking stocks, with Deutsche Bank hitting an all-time low amid concerns over the impact on its finances of a big U.S. fine.

The pan-European STOXX 600 index fell 1.6 percent to a one-week low. The index is down by around 7 percent since the start of 2016.

Deutsche Bank tumbled more than 7 percent after a German magazine said Chancellor Angela Merkel had ruled out state assistance for the bank and rejected any interference in a case where the U.S. justice department (DOJ) is demanding $14 billion.

"Political backing could give the bank a helping hand in negotiating a settlement with the DOJ," said Federico Trabucco, fund manager at Kairos Partners in Milan. "It is a bit difficult to invest until you get some clarity on the full amount of a potential settlement and how it will be financed," he added.

Analysts at Mediobanca Securities said a Deutsche Bank rights issue now looked inevitable although any such move was still some way off because the exact impact of the DOJ case and a number of other litigations was still unclear.

Deutsche Bank said on Monday it had no need for German government help in the $14 billion U.S. dispute and that a capital increase was not an issue at the moment.

The STOXX Europe 600 Banking index dropped 2.3 percent.

British bank Lloyds fell 3.1 percent after Goldman Sachs cut its rating on Lloyds to "sell" from "neutral".

The broader European banking index is down by around 20 percent since the start of 2016 - the worst-performing equity sector in Europe this year - as the industry has been impacted by concerns that negative interest rates will hit the profitability of banks.

"Banks are still in bad shape," said Rupert Baker, a European equity sales executive at Mirabaud Securities.

Baker expected European stock markets to make little progress until the outcome of November's U.S. presidential election. Democrat candidate Hillary Clinton and Republican rival Donald Trump are due to square off in their first televised debate later on Monday.

"We're not really going to go anywhere on European markets until the November election," Baker said.

Among other individual stock movers, German chemical maker Lanxess surged 8.1 percent after it said it would buy speciality chemical company Chemtura for about2.4 billion euros ($2.69 billion) including debt.

"CEO Matthias Zachert has a very good track record with acquisitions so far and Chemtura seems to be another good one," DZ Bank analyst Peter Spengler said. (Editing by Susan Thomas and Susan Fenton)