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* Formal talks indicate merger progress
* Both banks say outcome is uncertain
* Deutsche says aims to remain global bank (Updates with analyst, political reaction, spokesman)
FRANKFURT, March 17 (Reuters) - Deutsche Bank and Commerzbank confirmed on Sunday they were in talks about a merger, although both warned that a deal was far from certain and analysts questioned the merits of a combination.
Germany's two largest banks issued short statements following separate meetings of their management boards, a person with knowledge of the matter said, indicating a quickening of pace in the merger process.
"In light of arising opportunities, the management board of Deutsche Bank has decided to review strategic options," Deutsche said in its statement.
Christian Sewing, Deutsche Bank's chief executive, told employees that Deutsche still aimed "to remain a global bank with a strong capital markets business...with a global network".
Sewing also said that many factors could prevent a merger, and a Deutsche spokesman said the talks were expected to last for some time. For its part, Commerzbank described the outcome as open.
Formal disclosure of talks appears to boost the chances of concluding a deal floated in 2016 before the banks opted to focus on restructuring.
The German government has pushed for a combination given concerns about the health of Deutsche, which has struggled to generate sustainable profits since the 2008 financial crisis.
The government, which holds a stake of more than 15 percent in Commerzbank following a bailout, wants a national banking champion to support its export-led economy, best known for cars and machine tools.
Berlin also wants to keep Commerzbank's speciality - the funding of medium-sized companies, the backbone of the economy - in German hands.
A merged bank is likely to rank as the third largest in Europe behind HSBC and BNP Paribas.
However, sceptics questioned the strength of a merged operation.
"We do not see a national champion here, but a shaky zombie bank that could lead to another billion-euro grave for the German state. Why should we take this risk?" said Gerhard Schick, finance activist and former member of the German parliament.
While the banks had not publicly commented on merger talks until Sunday, Finance Minister Olaf Scholz last Monday confirmed that there were negotiations.
On Sunday, the ministry acknowledged the announcement and said it remained in regular contact with all parties.
However, there were signs of political opposition.
Hans Michelbach, a lawmaker from the Christian Social Union (CSU), the Bavarian sister party of Chancellor Angela Merkels Christian Democratic Union (CDU), called on the government to sell its 15 percent stake in Commerzbank before a deal.
"There may not be an ownership by the federal government in a merged big bank indirectly through an old stake. We do not need a German State Bank AG," he told Reuters.
The supervisory boards of both banks are scheduled to hold long-planned meetings on Thursday, four people with knowledge of the matter told Reuters. The status of merger negotiations is expected to be discussed.
The merged bank would have roughly 1.8 trillion euros in assets, such as loans and investments, and a market value of about 25 billion euros ($28.3 billion).
It would have one fifth of the German retail banking market and together the banks employ 140,000 people worldwide, with Deutsche employing 91,700 people and Commerzbank 49,000.
Germany's Verdi labour union has objected strongly to a merger, saying that at least 10,000 jobs are at risk.
Deutsche, the largest bank in Germany, Europe's biggest economy, emerged unscathed from the financial crash but later lost its footing.
German officials fear that a recession or big fine, for example, could derail the bank's fragile recovery.
Other than Deutsche, Commerzbank is Germany's only remaining big publicly-traded bank, after a series of mergers.
Commerzbank, like Deutsche, has struggled to rebound, and German officials say it is vulnerable to a foreign takeover. If an international rival snapped it up, that would increase competition for Deutsche on its home turf.
The initial analyst reaction to a deal was sceptical.
There will only be limited benefits of adding Commerzbank's clientele of retail and small and medium businesses to Deutsche, said David Hendler, an independent analyst at New York-based Viola Risk Advisors, which specializes in risk management. "It doesn't change the fact that Germany is not getting a flagship bank that can compete on the world stage. It's still a stunted bank with a lot of problems," Hendler said.
One of the biggest risks is how to fill what one German official has told Reuters will be a multi-billion-euro financial hole because a merger could trigger an adjustment to the valuation of some bank investments.
Commerzbank, for example, has about 30.8 billion euros of debt securities such as Italian bonds that now have a value of 27.7 billion euros - a drop of 3.1 billion euros. A tie-up could crystallise this loss. Deutsche has such securities at market value in its accounts. ($1 = 0.8829 euros)
(Additional reporting by Michael Nienaber in Berlin Editing by Ed Taylor, Ludwig Burger and Keith Weir)