The Swiss government held a special session on Monday to discuss the U.S. tax evasion case hanging over Swiss bank UBS as negotiations to settle the issue dragged on.

The Swiss government, currently in recess, is holding an extraordinary meeting on Monday, a government official said, without adding details.

Switzerland and the United States failed on Friday to agree on a settlement that would spare UBS a tax trial, and talks will continue until August 12, when a new status conference with U.S. Judge Alan Gold is scheduled.

The case has big implications for the global offshore banking industry and is the sternest ever legal challenge to bank secrecy in Switzerland, whose private banks manage around $2 trillion of foreign wealth.

My suspicion is that it is not good news. I'm sure there will be a resolution, but whether it will be as beneficial for UBS as the market was hoping is not looking likely, said Helvea analyst Peter Thorne.

Berne and Washington have already said they agreed in principle, and a settlement is expected to involve the disclosure of some of the names of the 52,000 U.S. clients holding secret Swiss accounts the U.S. authorities are seeking.

UBS shares, which have rallied in recent weeks on hopes of a deal, were down 0.3 percent at 16.29 Swiss francs at 4:45 a.m. EDT, in line with the DJ Stoxx European Banking index <.SX7P>.

Swiss media have said U.S.-Swiss talks have stalled on legal details on how to allow the transfer of some client data to Washington while respecting strict Swiss banking secrecy laws.

It is not a problem that has to do with UBS, but rather with the legal procedure, Finance Minister Hans-Rudolf Merz told Swiss television on Sunday, without going into details.

LENGTHY COURT APPEALS

According to Swiss newspaper NZZ am Sonntag, the U.S. wants guarantees that the so-called administrative assistance process, the legal framework under which bank client details can be transferred to the United States, will deliver the data, and quickly.

But Merz said on Sunday Switzerland was not prepared to introduce emergency measures to force the pace of the process.

Any transmission of such data from Switzerland to the U.S. would normally involves potentially lengthy court appeals, and the U.S. Justice Department is believed to be looking for ways to cut down on such delays.

Originally scheduled for July 13, the case against UBS is now set for court on August 17, but if the parties choose to delay further, the next available date would be September 21.

Berne already stretched its legal system in February when it forced UBS to quickly hand over 250 client names, bypassing the clients' appeals, in order to settle criminal charges against the bank.

UBS's clients are believed to include many Americans with European roots who inherited substantial wealth; well-traveled businesspeople who have received offshore compensation via Swiss accounts; and people whose main objective in opening such accounts was to avoid taxes.

(Writing by Emma Thomasson; Editing by Will Waterman)

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