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* Henderson/Janus deal lifts shares of fund managers
* FTSE touches 16-month high as sterling drops
* German DAX market closed for public holiday
* Bank software deal sends Temenos to all-time high
By Sudip Kar-Gupta and Danilo Masoni
LONDON/MILAN, Oct 3 (Reuters) - European stock markets mademinor gains on Monday as a rise in the shares of fund managementcompanies in the wake of a large merger in the sector propped upmarkets.
Nevertheless, lingering concerns over Deutsche Bank still weighed on the minds of some investors.
The pan-European STOXX 600 index ended up 0.1percent, although the index remained down by around 6 percentsince the start of 2016.
Britain's FTSE 100 rose 1.2 percent to a 16-monthhigh, helped by a drop in sterling, as a weaker pound typicallybenefits the FTSE's export-driven, internationally focusedcompanies. The currency slid towards a three-decade low afterPrime Minister Theresa May set a March deadline for the formalprocess of departure from the European Union to begin.
Shares in fund management companies rose after Britain'sHenderson Global Investors agreed to an all-share $6billion merger with Janus Capital.
Henderson shares surged 16.7 percent, while rivals such asAberdeen Asset Management, Jupiter and Schroders rose 5 percent, 6 percent and 2.7 percent respectively.
"Given the increased scale, this deal may kick off a roundof merger speculation involving other asset managers such asJupiter," Cantor Fitzgerald analyst Keith Baird said.
Although Deutsche Bank's main German-listed shares were nottrading due to a public holiday, its U.S.-listed shares fell 2.2percent with the company's woes remaining at the forefront formany investors.
Deutsche Bank is throwing its energies into reaching asettlement before next month's presidential election with U.S.authorities demanding a fine of up to $14 billion formis-selling mortgage-backed securities.
City of London Markets Limited trader Markus Huber said sometraders were encouraged by signs that Deutsche Bank - whoseshares closed up 6.4 percent in Frankfurt on Friday - couldagree on a fine far less than $14 billion.
Analysts at JP Morgan and Morgan Stanley have forecastDeutsche could settle the case for $5.4-$6 billions.
However, other traders said Deutsche shares would remainunder pressure while there was no deal. Deutsche Bank is stilldown around 50 percent since the start of 2016 while the STOXXEurope 600 bank index is down 20 percent.
"The European banking system is clearly going through toughtimes, with high levels of non-performing loans, squeezedmargins due to negative interest rates, tougher regulations,weak economic growth and competition with the fintech industrybooming," said FXTM chief market strategist Hussein Sayed.
Among the biggest losers in the sector on Monday wereItaly's Intesa Sanpaolo and UniCredit, bothdown around 2 percent.
Shares in Temenos, a Swiss firm which sellssoftware for financial services, soared 10 percent to a recordhigh after the company said it had received an order from amajor European bank. (Editing by Mark Heinrich)
