UPDATE 3-EU set to sharply expand Iran sanctions -diplomats

* EU to ban business with around 100 Iranian companies

* Western powers frustrated with nuclear talks

* German-Iranian bank included in sanctions list

(Adds background)

By Justyna Pawlak and Ilona Wissenbach

BRUSSELS, May 19 (Reuters) - The European Union is expected to expand its sanctions against Iran significantly on Monday, reflecting growing frustration among Western powers with a lack of progress in nuclear talks with Tehran, EU diplomats said.

The 27 member governments are set to add about 100 companies to the bloc's embargo list, including German-based bank EIH, which specialises in business in Iran, at a meeting in Brussels.

"There is a list of about 100 companies to be added to the EU sanctions on Monday," one EU diplomat said on Thursday.

"Among those companies is the European Iranian ... Bank," said another diplomat, referring to EIH (Europaeisch-Iranische Handelsbank, or European-Iranian Trade Bank).

"There would now be enough evidence that the bank financed companies involved in Iran's nuclear programme."

The bank is already on the U.S. sanctions list, and Israel and the United States have lobbied Germany to shut it down.

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For a FACTBOX on Iran sanctions: [ID:nLDE71D1U6]

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The anticipated expansion of EU sanctions next week would bolster a range of financial and trade measures that aim to put economic pressure on Iran.

World powers say they suspect Iran is trying to develop atomic weapons under the cover of its declared civilian nuclear energy programme, but Tehran says it needs nuclear power to meet a growing domestic demand for electricity.

They have tried to persuade Iran to suspend the nuclear programme in return for trade and technology, but talks have ground to a halt.

FRUSTRATION

The EU's foreign policy chief, Catherine Ashton, expressed frustration on Tuesday at the lack of progress in talks.

Ashton said after meetings with U.S. Secretary of State Hillary Clinton that the EU had wanted a "stronger and better" reply from Iran to her call to revive the talks, and said there appeared little room for new negotiations for now.

"I do urge Iran to think again and to consider coming back to the table ... But from the letters that I've received, I don't see that at the present time," Ashton said.

She was referring to a letter this month from Iran's chief nuclear negotiator, Saeed Jalili, in which he said any talks should be just and "refrain from resorting to pressure instruments".

Analysts said his message was that Tehran would stick to its refusal to address its uranium enrichment drive.

The last talks, held in Istanbul in January, failed to yield results after Iran rejected any notion of suspending the enrichment programme in return for benefits offered by negotiators. (Editing by Rex Merrifield and Maria Golovnina)