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* Wells Fargo buys performing assets, Lone Star distressedloans
* Transaction eclipses Lone Star's 2011 Lloyds deal
* Commerzbank agrees to 3.5 percent discount
* Bank's shares up 5 pct
FRANKFURT, July 15 (Reuters) - Germany's second-biggestlender Commerzbank has sold British property loansworth 5 billion euros ($6.5 billion) to U.S. rival Wells Fargo and private equity firm Lone Star Funds to shrink itsloan book and reduce risk.
Commerzbank said on Monday that it agreed to a 3.5 percentdiscount on the loan portfolio's book value.
Wells Fargo is acquiring the performing loans, while LoneStar is scooping up the 1.2 billion in non-performing assets,Sascha Klaus, board member of Commerzbank's mortgage unitHypothekenbank Frankfurt - formerly known as Eurohypo - said inan interview published on Commerzbank's intranet and seen byReuters.
Distressed debt and equity investor Lone Star recentlyboosted its European staff numbers as it looks to buy portfoliosof underperforming real estate debt from banks. In 2011 itbought a 900 million pound ($1.4 billion) portfolio from LloydsBanking Group at a price sources said represented adiscount of up to 40 percent.
Banks around the world have been trying to streamlineassets, but few deals have materialised as buyers and sellersoften disagree on valuations.
However, the low-interest environment, which leaves holdersof some government bonds with hardly any returns, increases theattraction of higher-yielding alternatives. That has led toinvestors agreeing to lower discounts when buying risky assetssuch as non-performing mortgages.
"The expectations for returns have come down in certainmarkets due to the high liquidity (supplied by central banks),"Commerzbank's Klaus said.
The bank's lending deals included the Westfield StratfordCity shopping centre next to the Olympic stadium in London andEurope's most expensive block of flats, One Hyde Park, nearHarrods department store in central London.
Metzler Securities analyst Guido Hoymann described the 3.5discount agreed by Commerzbank as "only a small amount", butadded that the deal does not lead to a significant improvementof the bank's capital base.
Commerzbank shares extended gains after the announcement.They were up 5.1 percent at 1332 GMT, making the bank the topclimber among Germany's blue-chip companies.
Commerzbank shares had risen by 3 percent in early tradingafter a magazine report that Germany has spoken to the chairmanof UBS about the possibility of the Swiss bank buyingthe government's remaining Commerzbank stake.
