Commerzbank is bracing itself for a higher-than-predicted loss from investments related to risky U.S. mortgages that is set to knock a hole in profits, sources familiar with the matter told Reuters.

The bank could tell investors as early as Thursday that the roughly 80 million euros ($111 million) it had put aside to cover losses from debt products including subprime mortgages will not be enough, said one source.

Since that estimate was announced, the situation has become more critical, said that source, adding that the bank now faced having to make a higher charge. There is no market at the moment -- it could go in any direction.

There is no knowing what will happen -- it could be a loss of 500 million euros or even a complete loss. You can't say now, said another source.

A spokesman for Commerzbank said that it had not changed its estimate on subprime losses, although he did not rule out that it could do so in the near future.

The news sent Commerzbank's shares down nearly 3 percent although they later recovered to trade down 0.1 percent at 26.90 euros at 1139 GMT. Germany had been hit hardest in Europe by the storm in credit markets triggered by the failure of high-risk U.S. borrowers to keep up with their mortgage payments.

Although attention has moved to Britain, where the government has guaranteed deposits at troubled mortgage lender Northern Rock, investors remain nervous there could be worse to come in Europe's biggest economy.

Earlier in the year, Commerzbank sought to calm jitters by revealing that it had 1.2 billion euros of exposure to the risky subprime mortgage market through debt instruments.

It said it would book 80 million euros in the second and third quarters to cover expected losses.

A bigger subprime bill could now threaten Commerzbank's pledge to significantly beat its profit target for the year and put a fly in the ointment for what sources have said will be Klaus-Peter Mueller's last year as chief executive.

Mueller is eyeing a return on equity of more than 12 percent, which the bank said earlier in the year was equivalent to a net profit of 1.5 billion euros.

It made almost 1 billion euros excluding one-off items in the first half.

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