(Adds Axa statement, sources)
MILAN/ROME, Nov 3 (Reuters) - Key investors in Italy's Monte dei Paschi di Siena indicated that they would back the bank's latest rights issue, helping its shares to recover some lost ground after it failed a European financial health check.
The shares were up 6 percent at 0.64 euros by 1410 GMT. They had plunged 40 percent over the past five sessions after the European Central Bank (ECB) tests showed the bank faced a capital shortfall of 2.1 billion euros($2.6 billion).
French insurer Axa, which has a 3.7 percent stake in the Tuscan lender, was the first shareholder to publicly say it will buy into the rights issue -- the fourth since 2008. The Italian bank raised 5 billion euros as recently as June.
Another group of shareholders representing a combined stake of 9 percent and comprising the Monte dei Paschi banking foundation and Latin American investors BTG Pactual and Fintech, is also expected to back the capital increase, two sources with knowledge of the situation said.
"In the end I think all the main shareholders will take part, although no one is happy about the bitter medicine imposed by the ECB," one of the sources said, adding the capital increase was likely to take place in the first months of 2015.
BTG Pactual and Fintech, like other investors who purchased shares when the bank last tapped the market five months ago, have seen the stock fall more than 50 percent since.
"These shareholders have little alternative other than backing the plan: they'd be diluted otherwise and I'd be surprised to see it happen," said another source.
The world's oldest surviving bank has hired UBS and Citigroup to assess strategic options after it failed the ECB health check of lenders, designed to gauge the solidity of the euro zone's financial system.
The bank said on Sunday it was considering plugging the shortfall entirely through a capital increase. It ruled out converting a state bailout it received in 2013 into shares -- which would have meant partial nationalisation of the lender.
This helped the shares rebound from last week's slide, which was accelerated by uncertainty over what the bank would do to boost its finances, even though another cash call is likely to put pressure on the stock in the medium term.
"In our opinion, covering the capital gap through a capital increase would be the best solution for the bank," broker ICBPI said in a note on Monday.
The bank, which must submit a capital-boosting plan to the European Central Bank by Nov. 10 and implement it within nine months, also said it would not seek additional state aid and that its capital-boosting plan included asset sales.
Its board will meet on Wednesday, Nov. 5 to approve the measures. (1 US dollar = 0.8003 euro) (Reporting by Stefano Bernabei in Rome, Pamela Barbaglia in London and Silvia Aloisi in Milan; editing by Keith Weir)