The European Central Bank's Asset Quality Review (AQR) of 130 leading banks and stress tests of their ability to withstand a future crisis are supposed to shore up confidence by drawing a line under the euro zone crisis.

But the possibility that even a handful of the banks will be told to raise billions of euros in extra capital has put investors on alert, especially as this week's volatility on equity, debt and energy markets may point to more pain for European Union lenders by hitting their profits.

Information on the review, results of which are due on Oct. 26, is scant and there is no market consensus on its outcome.

Concerns range from losses on bond portfolios held by banks in peripheral euro zone economies such as Italy or Greece to the greater difficulty of raising funds when markets are turbulent.

"Regardless of the AQR ... the market will still be focused on banks' health because many of the weaker banks also have significant holdings of sovereign bonds, so when there is market volatility, these banks are hit," said Alberto Gallo, head of European macro credit research at RBS.

"(And) while before it was very easy to raise capital even for weaker banks ... this may be harder going forward."

Investors expect most banks to pass the health-check, vindicating lenders' recent efforts to rebuild their balance sheets. European banks have raised $56.9 billion (35.38 billion British pounds) from equity capital markets this year, up 32 percent from at the same stage last year, according to Thomson Reuters data. There have been 41 equity raisings, compared with 27 a year ago.

But the market turmoil has magnified fears about "outliers" which may just scrape through the test, or fail.

These centre on Italy's third-biggest bank Monte dei Paschi di Siena (>> Banca Monte dei Paschi di Siena SpA). Its share price fell to a record low on Thursday, even though it raised 5 billion euros from shareholders in June.

Monte dei Paschi's chief executive has said the bank's capital raising efforts put it on a stable footing, but a big shareholder said last month it was uncertain whether the ECB health checks would result in further capital requirements.

Monte dei Paschi features most prominently in eight separate reports on which banks are most at risk by analysts at the likes of Citi, Goldman Sachs, JP Morgan and Credit Suisse.

Views on Spain's Banco Popular (>> Banco Popular Espanol SA), France's Credit Agricole (>> CREDIT AGRICOLE) and Greece's Piraeus Bank (>> Piraeus Bank SA) are more mixed. Each is rated as most at risk in one of the reports, although other reports judge them as being less at risk.

Even the euro zone's biggest economy is not exempt. Some reports have cited Germany's Commerzbank (>> Commerzbank AG) as being among those most at risk, while the bonds of state-owned lenders HSH Nordbank, Munich Hypo and Nord/LB have taken a hit over fears they may fall short.

Most banks cited as outliers declined to comment publicly, though several privately criticised the research analysts for trying to predict the outcomes. "From the outside it's hard to know (how a bank will do)," said one banker.

The reasons cited for potential capital weakness are varied, ranging from the burden of bad loans in weak euro zone economies to the threat of losses on securities held by banks.

IMPOSSIBLE TO PREDICT?

Given the wide range of views and broader market jitters over the outlook for European economic growth, some investors say making predictions on the outcome is impossible as much depends on how strict the ECB will be.

The ECB has set a capital ratio of 8 percent of risk-weighted assets as a benchmark in a baseline scenario and 5.5 percent in an adverse stress scenario, although success or failure would also depend on whether the regulator finds loans on the book to bee overvalued, which would eat into capital.

Some optimistic investors are betting that there is scope for a positive surprise from the results, given efforts already this year on filling capital gaps. Some banks, such as Italy's BP Milano (>> Banca Popolare di Milano), said they were reassured after preliminary meetings with the regulator.

"The ECB has absolutely no interest whatsoever in causing some sort of banking crisis," said Stephen Macklow-Smith, who helps manage $26 billion as part of the J.P. Morgan Asset Management European Equity Group.

With markets' risk aversion rising, however, those investors looking for a way to trade the AQR even in a period of volatility will stick with the large banking groups that are almost unanimously expected to sail through the test unscathed.

"I don't think we'll have a big surprise for big names," said Yohan Salleron, fund manager at Mandarine Gestion in Paris. "There may be some banks which will have to increase their capital, but it will be small, peripheral banks."

(1 US dollar = 0.7828 euro)

(Additional reporting by Steve Slater; Writing by Lionel Laurent; editing by David Stamp)

By Francesco Canepa and Laura Noonan