UPDATE 2-UniCredit selects Orcel as Monte dei Paschi searches for saviour

* Orcel set to take over as CEO after mid-April

* Could study MPS deal as UniCredit adviser before that

* Mustier to leave after 2020 results on Feb. 11 - sources

* Change of guard complicates MPS deal for Treasury (Recasts after statement)

By Valentina Za, Giuseppe Fonte and Jesús Aguado

MILAN, Jan 27 (Reuters) - UniCredit's board unanimously designated Andrea Orcel as the bank's new chief executive on Wednesday, paving the way for his appointment in April while leaving the fate of Italian rival Monte dei Paschi (MPS) in limbo.

Italy's Treasury has been studying a potential sale of struggling state-owned MPS to UniCredit, and sources have said it hoped to get the country's second-biggest bank to sign a confidentiality agreement this month to kick off formal talks.

Such a step needs approval by UniCredit's board, but no such decision was taken on Wednesday, confirming what sources had earlier told Reuters.

The future of both Italy's only globally significant lender and the world's oldest bank are now in the hands of one of Europe's deftest and best-known dealmakers.

"Orcel... has a vast breadth of experience and exceptional strategic judgement, which will be essential in leading UniCredit into the future. I look forward to working with him," Chairman Designate Pier Carlo Padoan said in a note.

Orcel, the former head of investment banking at UBS , will take over from outgoing CEO Jean Pierre Mustier at UniCredit after being appointed to the board in mid-April.

However, he may start getting involved in the bank before that and study the MPS file as an adviser, two sources with knowledge of the matter said, adding that Mustier was due to leave after presenting 2020 results on Feb. 11.

The delayed appointment will give Orcel time to resolve a 112 million euro lawsuit he brought against Santander after the Spanish bank pulled its offer to make him chief executive in 2019.

A source with knowledge of the matter told Reuters that Orcel was open to reaching a settlement with Santander and would be ready to cut his claim to 60 million euros.

Santander declined to comment and Orcel's spokesman was not immediately available for comment.

INFORMAL CONTACTS

MPS' board meets on Thursday to examine plans to plug a capital shortfall of up to 2.5 billion euros ($3 billion) which it must submit to European supervisors this week.

The government had aimed to reach an agreement to reprivatise MPS by April, so as to pump fresh money into the lender while selling it to a healthier rival to finally resolve its woes.

But the boardroom clash at UniCredit which in November prompted Mustier to tender his resignation put at risk the desired timeline.

In the absence of a buyer in the near term, MPS has considered issuing some costly hybrid debt to replenish its capital as a bridge solution before an equity injection in a subsequent merger, two of the people said.

UniCredit has had informal contacts with the Treasury about MPS since last summer and Rome had been working to meet the strict terms set by Mustier to consider any deal, despite his aversion to mergers and acquisitions.

Intesa SanPaolo's successful takeover of UBI Banca last year called into question Mustier's "no M&A" strategy at a time when regulators were pushing for consolidation and letting lenders reap paper profits from discounted bank valuations.

To further entice UniCredit, Italy has approved tax benefits for mergers taking place in 2021.

Before being picked to replace Mustier, Orcel had told the government he would consider a potential transaction without any prejudice, a person briefed on the discussions told Reuters.

Rendered vulnerable by an excessive exposure to Italy's debt and its fragile economy, MPS was also weakened by an ill-fated acquisition in 2007 which Orcel had advised the bank to do when he was at Merrill Lynch. ($1 = 0.8230 euros)

(Reporting by Valentina Za in Milan, Giuseppe Fonte in Rome and Jesus Aguado in Madrid; Editing by David Clarke and Jan Harvey)