Shares in UBS are expected to rise on Monday after reports the bank would not have to pay a fine as part of the settlement of a tax dispute with the United States that is to be finalized later this week.

The U.S. government and UBS struck a deal in principle on Friday to settle tax litigation against the Swiss bank, heading off a showdown that had threatened to sour relationships between the two countries.

A U.S. government source told Reuters on Friday he expected UBS not to pay a fine as part of the settlement, and Swiss newspapers reported at the weekend that the deal would also include the bank handing over 5,000 names of U.S. clients holding secret Swiss accounts.

Traders said they welcomed the news that UBS would not have to pay a fine, as this removed the risk of further capital injections for the Swiss bank.

If UBS does not have to pay a fine, this would clearly be positive for the stock price. But we still do not know if this will be the outcome, said WestLB analyst Georg Kanders.

As far as the names are concerned, this would be a compromise. It will probably hurt their business with U.S. clients, but this business is pretty much dead already.

Shares in UBS are indicated to rise 3.8 percent to 16.2 Swiss francs at the open, according to data from Clariden Leu. They also rose 7 percent on Friday.

UBS is expected to report a net loss of 1.1 billion Swiss franc ($1.03 billion) when it reports results on Tuesday, along with billions of francs of outflows from its prized wealth management arm.

U.S. shares have reacted positively to the striking of the a deal with U.S. tax authorities, ZKB analysts said in a note.

This has not removed all problems. But this is in any case a first positive step to win back client confidence.

The main sticking point in the tax row was that Washington wanted UBS to disclose the names of 52,000 American clients suspected of using Swiss secret accounts to dodge taxes, a request that challenged Switzerland's tradition of bank secrecy.

The parties still have to work out details, which are expected by Friday, when a new pretrial status conference is scheduled. The court trial against UBS has been reset for August 10, but would be called off if a final deal is signed.

Switzerland's top diplomat Michael Ambuehl told Swiss newspaper NZZ am Sonntag the deal would not violate Swiss law.

The Swiss legal system is maintained, because the U.S. have promised to act on the basis of the current agreements and to ask for legal assistance again, said Ambuehl, who is state secretary in the foreign ministry.

(Reporting by Katie Reid and Lisa Jucca, editing by Will Waterman)

($1=1.070 Swiss Franc)

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