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(Adds analysts on Deutsche Bank, U.S. bank shares, updates prices)
By Amanda Cooper, Sruthi Shankar and Amruta Khandekar
March 24 (Reuters) - Banking stocks fell sharply in Europe on Friday with heavyweights Deutsche Bank and UBS Group pummelled by worries that the worst problems in the sector since the 2008 financial crisis have not yet been contained.
Deutsche Bank fell for a third day, sinking more than 11% after a sharp jump in the cost of insuring the German giant's bonds against the risk of default.
Its shares have lost a fifth of their value so far this month and the cost of its credit default swaps (CDS) - a form of insurance for bondholders - jumped to a four-year high on Friday, based on data from S&P Market Intelligence.
"Deutsche Bank has been in the spotlight for a while now, in a similar way to how Credit Suisse had been," said Stuart Cole, head macro economist at Equiti Capital.
"It has gone through various restructurings and changes of leadership in attempts to get it back on a solid footing but so far none of these efforts appear to have really worked."
Deutsche Bank declined to comment when contacted by Reuters.
The global banking sector has been rocked since the sudden collapse this month of two U.S. regional banks. Policymakers have stressed the turmoil is different from the global financial crisis 15 years ago, saying banks are better capitalised and funds more easily available.
But the worries have spread quickly, and on Sunday UBS was rushed into taking over Swiss peer Credit Suisse AG after the troubled lender lost the confidence of investors.
Swiss authorities and UBS are racing to close the takeover within as little as a month, according to two sources with knowledge of the plans.
Separate sources told Reuters that UBS has promised retention packages to Credit Suisse wealth management staff in Asia to stem a talent exodus.
Brokerage group Jefferies cut its recommendation on UBS stock to "hold" from "buy", saying the acquisition of its former rival would change UBS's equity story, which was based on a lower risk profile, organic growth and high capital returns.
"All these elements, which is what UBS shareholders bought into, are gone, likely for years," it said.
Separately, Bloomberg News reported that Credit Suisse and UBS are among banks under scrutiny in a U.S. government probe into whether financial professionals helped Russian oligarchs evade sanctions.
Credit Suisse and UBS declined to comment, while the U.S. Justice Department did not immediately respond to Reuters' requests for comment.