BBVA's expected purchase of troubled Texas lender Guaranty Financial Group will boost its southern U.S. strategy, but analysts are keeping close tabs on the bank's capital levels.

Banco Bilbao Vizcaya Argentaria, Spain's second-largest bank with a market capitalization of $60 billion, is expected to win a U.S. government-run auction to buy Guaranty, sources familiar with the situation told Reuters on Wednesday.

The Spanish bank declined to comment on the auction, whose result was expected to be announced by the end of the week.

BBVA has long targeted the Spanish-speaking niche market in the United States as a snug fit with its operations in Mexico, where it owns the country's biggest bank, Bancomer.

The expected purchase of Guaranty, with $14 billion in assets, would also meld well with its 2007 purchase of Compass, which has nearly 600 branches over Texas, Alabama, Arizona, Florida, Colorado and New Mexico.

But analysts are focusing on any damage this buy, or upcoming ones, might do to BBVA's capital levels, with its core capital -- a bank's main buffer to protect against losses -- at 6.9 percent.

We believe that this tactical acquisition comes at the correct moment, but for us capital remains the key focus. In our view, the minimum comfortable level (for core capital) for BBVA is 6.5 percent, said Espirito Santo in a client note.

Some have been anticipating a BBVA capital hike for some time, although the bank denies there is a need to sell more shares as did, for example, rival Santander last year.

This a small lock-on acquisition and is unlikely to consume much capital, said Flemming Barton, equity strategist at CM Capital Markets in Madrid.

But I'm not ruling out a capital hike over, say, the next 12 months. Ultimately their core capital is on the low side relative to other European banks and the trend is for banks to have more, because of new rules and regulatory pressures.

Analysts believe the Guaranty purchase could take up to 40 basis points off BBVA's core capital. But BBVA could find other acquisition opportunities as struggling banks surface in the wake of the financial crisis.

Loan defaults in Spain are also rising as unemployment soars to 18 percent, whittling banks' capital.

On a purely strategic basis, analysts were positive on the expected U.S. purchase, and BBVA shares were up in line with the market, having outperformed at the open. At 5:27 a.m. EDT, they were 1.9 percent higher at 11.55 euros compared to a 2.1 percent rise in European banks.

It makes both strategic and financial sense for BBVA to add more assets in the U.S., particularly in Texas, said analysts at a Spanish brokerage in a note to clients, adding that recent similar transactions had given good value for buyers.

Up to now BBVA has sat on the sidelines while larger Spanish rival Santander swooped in to pick up troubled banks abroad such as Britain's Bradford & Bingley and Alliance & Leicester and Sovereign in the United States.

Spain's listed banks avoided most of the subprime crisis due to strict regulation by the Bank of Spain, which also imposed demanding provisioning requirements. Only one small Spanish savings banks has had to be bailed out during the financial crisis, although banks are now facing rising defaults due to the implosion of a housing bubble.

(Additional reporting by Robert Hetz; Editing by Dan Lalor)

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