UK's Labour mulls moving loan from Co-op Bank -sources

* Labour says move would be for commercial reasons

* Move (NasdaqGS: MOVE - news) would hand unions more control - Conservatives (Adds reaction from Conservative Party)

By Matt Scuffham and Kylie MacLellan

LONDON, April 24 (Reuters) - Britain's Labour Party is considering moving a 1.2 million pound ($2 million) loan with the troubled Co-operative Bank to Unity Trust Bank, which is controlled by the country's trade unions, sources familiar with the matter said on Thursday.

The sources said discussions were at an early stage and emphasised Labour would continue to bank with the Co-op, a major lender to Britain's main opposition party.

"We constantly review our financial arrangements and any decisions taken, including any consolidation of loans, are done for commercial reasons," a Labour party spokesman told Reuters.

The BBC reported earlier that Labour would look to move all its current account facilities to the Unity Trust Bank once the loan had been moved.

Co-op Bank hit trouble last year when a 1.5 billion pound capital shortfall was exposed, leading the mutually-owned Co-operative Group to lose control of the business to bondholders including U.S. hedge funds.

The bank's problems were exacerbated when former chairman Paul Flowers was charged with possessing illegal drugs.

The future of the bank remains in question after it said in March it needed to raise another 400 million pounds to cover the cost of past misconduct.

The bank is a 27 percent shareholder in Unity Trust Bank but said in January that it was in talks to sell its stake. The remaining stake is owned by trade unions.

The Conservative Party said moving the loan to Unity Trust Bank would give unions more control over the Labour Party's finances.

"The unions already pick the candidates, buy the policies and choose the leader. Now (Labour leader) Ed Miliband wants them to hold the purse strings as well," said Conservative Chairman Grant Schapps.

Co-op Bank declined to comment.

($1 = 0.5960 British Pounds) (Additional reporting by Andrew Osborn; Editing by Laura Noonan and Mark Potter)