Berlin  - The German government agreed Thursday to take a 25 per cent stake in the country's second biggest bank, Commerzbank, in return for providing a fresh infusion of capital.

Commerzbank said the state rescue fund for the banking sector, Soffin, would make available 10 billion euros (13.56 billion dollars) in addition to the 8.2 billion euros it provided in November.

Commerzbank, which is poised to take over rival Dresdner Bank at the end of January, had earlier won a pledge of 15 billion euros in state guarantees in return for a promise to increase lending to small and medium-sized companies.

Analysts said Commerzbank was apparently in need of the extra cash because of higher-than-anticipated write-offs by Dresdner, which is owned by insurance giant Allianz.

Earlier Thursday, Commerzbank became the first German lender to issue a bond backed by state guarantees. The bank set the size of the bond at 5 billion euros.

Shares in Commerzbank ended the day 13.8 per cent lower at 5.36 euros, while Allianz shares slumped 8.84 per cent to 64.27 euros.

Under the deal, the German government will take a 25-per-cent stake plus one share in Commerzbank, the nation's second biggest lender after Deutsche Bank.

The move, the first time the government has taken a stake in a major German private bank, gives it a veto right on board decisions of the new Commerzbank-Dresdner unit.

The German Finance Ministry said the move "sent a strong signal to a strong Commerzbank."

Finance Ministry spokesman Torsten Albig said the government's action was "not a partial nationalization, but an exercise of our responsibility for one of the major German players on the financial market."

The move effectively rescued the acquisition of Dresdner and will increase the core capital ratio of the new Commerzbank unit to 10 per cent.

"Against the background of the intensified financial crisis, the new bank will thus be enabled to meet the substantially higher capital requirements for banks," Commerzbank said.

Under the deal, Allianz will boost Dresdner Bank's capital by taking over collateralized debt obligations with a nominal value of 2 billion euros at a purchase price of 1.1 billion euros.

Commerzbank said the German government was clarifying further details with the EU Commission. (dpa)