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UPDATE 1-France, Germany dismiss report they have agreed to divide EU bodies

(Adds French, German officials, background)

FRANKFURT, June 22 (Reuters) - German and French officials dismissed a report the two countries had agreed to divide agencies for the regulation of banking and drugs between them after Britain leaves the European Union, as European cities compete to host the two EU bodies.

Citing anonymous EU sources, German magazine WirtschaftsWoche reported on Thursday that under the Franco-German deal, the European Banking Authority (EBA) would move from London to Frankfurt and the European Medicines Agency (EMA) would move to Lille.

But officials in both countries dismissed the idea, arguing that the two countries did not have the power to decide that on their own: "Nonsense," said a German government official. "A Brussels rumour," a French official said.

A final decision is expected in October after EU states vote, first on the medical, then on the banking authority. A voting procedure was expected to be agreed on Thursday, a French official said.

"It is not for the two to decide expecially with the procedure coming now," another German official added.

"We want an approach that avoids a fist-fight," the French official said. "The idea behind this procedure is to avoid confrontation."

EU states earlier this week locked horns over the two London-based agencies, which would bring hundreds of qualified jobs to their new host cities -- taking them from Britain -- a test of unity for the 27 remaining members.

Germany, France, Ireland are among the states that have said they will apply to host both bodies, though diplomats say no country will get both.

The new French health minister, Agnes Buzyn, was in Lille on Thursday to promote the northern city - whose main advantage is its closeness to London, Paris and Brussels - as a host for the drugs agency.

Meanwhile, the head of the greater Paris region, Valerie Pecresse published a letter urging President Emmanuel Macron not to let the banking agency go to Frankfurt, which would threat French financial interests, she said. (Reporting by Maria Sheahan in Frankfurt, Andreas Rinke in Berlin; Michel Rose in Paris; editing by Jeremy Gaunt)