* Bank's shares and junior bonds both fall on Wednesday
* Monte Paschi's market value has more than halved this year
* Lender faces crisis over its pile of bad loans
* Some savers withdraw cash, CEO says outflow limited (Adds closing price, government meeting)
By Francesca Landini and Stefano Bernabei
MILAN, Jan 20 Some Monte dei Paschi customers have been pulling savings out of the Italian bank, its chief executive said on Wednesday, as it faces a crisis over a mountain of bad loans that has wiped nearly 60 percent off its market value this year.
CEO Fabrizio Viola did not say how much money savers had withdrawn, or when the outflow began, though he said the fall in deposits was "limited" and that the bank could cope with it as he sought to reassure customers and investors.
Italian bank shares have lost 24 percent since the beginning of 2016 as investors, already rattled about global economic growth, have sold out of a sector with low profitability and about 200 billion euros ($218 billion) of loans that are unlikely to be repaid.
Monte Paschi - Italy's third-biggest bank - has lost the most ground as it is perceived to be the most vulnerable; it has the highest level of bad loans as a proportion of assets and was the worst performer in a 2014 health check of euro zone lenders.
The Tuscan-based bank's stock, which had sunk 15 percent on Monday and 14 percent on Tuesday, was suspended from trading several times on Wednesday before closing down 22.2 percent. Fears of contagion from Monte dei Paschi's crisis helped drag down other Italian banking stocks, with Carige and Banco Popolare shedding 18 and 11 percent respectively.
"Of course clients turning to our local branches are worried about what they read," Viola said in a statement.
"At present the size of the funding lost due to clients who decided to move part of their savings elsewhere is limited and anyway below levels seen during the previous crisis the bank faced in February 2013 which was overcome brilliantly."
The 2013 crisis he was referring to was when the world's oldest bank, already badly hurt by the euro zone debt crisis, was hit by a scandal about loss-making derivatives trades.
Monte Paschi's bonds also suffered on Wednesday, with a September 2020 subordinated paper at one stage yielding 24 percent, up from 19 percent at Tuesday's close and just above 10 percent on Friday.
A Milan bond trader said both retail and some institutional investors were trying to sell the bank's debt. "Everyone is trying to get out. Retail for sure but I saw also a couple of fund managers today," the trader said.
Italian lenders' huge pile of soured loans is tying up capital and holding back fresh credit that could support a fragile economic recovery in the country.
A boost to bank stocks from merger speculation following an overhaul of cooperative lenders last year has fizzled out as a deal has yet to materialise.
Monte Paschi was told by the European Central Bank to seek a buyer after the 2014 health check. It appointed UBS and Citi as advisers more than a year ago but has so far failed to find one. On Wednesday Italy's two biggest banks - UniCredit and Intesa Sanpaolo - ruled out any possibility that they could step in to salvage Monte Paschi.
A rescue of four small lenders in November carried out under new EU rules which imposed losses on shareholders and junior bondholders has meanwhile caused concerns among Italians, traditionally large holders of bank debt.
Since then, there have been concerns that customers could move money out of lenders perceived as weaker, to those banks considered stronger, say industry players.
"Over the past few days many have been wondering about the pace at which people closed their accounts and sold bank bonds," said Giuseppe Sersale, a fund manager at Anthilia Capital Partners. "I wouldn't call it a bank run but there are definitely outflows," he added.
As banking shares plunged for a third day running, Prime Minister Matteo Renzi met Economy Minister Pier Carlo Padoan and both the governor and director general of the Bank of Italy. But no new measures were announced, with Padoan saying after the meeting that Italy's economic system was "solid".
Viola said the plunge in Monte Paschi shares was not a reflection of the bank's fundamentals, which he said had improved in the last quarter of 2015.
He said revenues rose both compared with the third quarter and from a year earlier while costs were cut, adding that liquidity levels at the end of 2015 were at their highest in four years and the bank's capital base was adequate. The bank reports its annual results on Feb.5.
Viola said he was confident the bank would weather the current crisis and that the recent fall in the stock did not appear to be linked to sales of big stakes.
($1 = 0.9161 euros) (Additional reporting by Valentina Za and Danilo Masoni; Editing by Silvia Aloisi and Pravin Char)