UPDATE 5-Lloyds falls to 10 bln stg loss, in asset plan talks

* Lloyds in "advanced talks" on UK asset insurance scheme

* HBOS 2008 loss 10.8 bln stg on writedowns, bad debts

* Lloyds TSB profit 800 mln stg, down 80 pct

* Lloyds shares fall 20 percent

(Adds Lloyds chairman comment, fresh analyst reaction, further detail)

By Myles Neligan and Steve Slater

LONDON, Feb 27 (Reuters) - Part-nationalised Lloyds Banking Group (LLOY.L) unveiled a 10 billion pound ($14.28 billion) loss for 2008 and said it had not finalised a plan to put billions of pounds of assets into a UK government-backed insurance scheme.

Lloyds said on Friday talks with the government on the insurance scheme were "well advanced", and Chief Executive Eric Daniels told Reuters he would provide an update "reasonably shortly".

He declined to comment on how much would be put into the scheme while he was "in the middle of negotiations".

Daniels also defended Lloyds TSB's acquisition of rival HBOS in January, seen by some investors as having exposed conservatively run Lloyds to hefty bad debts and asset write-downs at HBOS.

"I think it's a very good deal, I think it'll prove to be a seminal event in the history of Lloyds," he said.

Lloyds had been expected to announce it was putting more than 250 billion pounds of risky assets into the government-backed scheme, aimed at protecting banks from further falls in the value of their credit-related assets.

Lloyds chairman Victor Blank told reporters that talks with the government had been temporarily halted so that Treasury officials could rest after lengthy all-night discussions earlier this week with Royal Bank of Scotland (RBS.L) over its participation in the scheme.

SHARES FALL

By 1629 GMT, Lloyds shares were down 20.5 percent at 59.6 pence, giving up some of their 31 percent surge on Thursday when they were helped by optimism that terms of the plan would be more favourable than earlier expected.

"They haven't managed to conclude a deal on asset protection, and we think the uncertainty will lead to disappointment," said Simon Willis, analyst at NCB Stockbrokers.

The so-called asset protection scheme launched by Britain's Treasury on Thursday is expected to insure well over 500 billion pounds worth of assets by the time other banks have signed up.

In a conference call with analysts, Lloyds Finance Director Tim Tookey warned the group was set to sink into the red again this year as rising unemployment and falling house prices push up bad consumer loans.

"We expect the group to report a loss in 2009 before accounting for goodwill," Tookey said.

Bad debts are expected to remain at high levels this year, especially in high-risk parts of HBOS' loan book, while an estimated 2.5 percent contraction in the UK economy will crimp consumers' creditworthiness, Lloyds said.

HBOS suffered a 2008 statutory loss of 10.8 billion pounds, hit by 9.9 billion pounds of losses on soured corporate loans, rising homeowner bad debts and credit market exposure.

"The scale of the deterioration in the HBOS book has shocked us," Collins Stewart analyst Alex Potter wrote in a research note.

The former Lloyds TSB business made a statutory profit of 807 million pounds, down from 4 billion pounds, as its impairments jumped to 3 billion pounds.

HBOS's loss was in line with guidance Lloyds gave two weeks ago in a profit warning. It indicates that the combined group made a statutory loss of 10.1 billion pounds, compared with a combined profit of 9.4 billion in 2007.

News of HBOS' deficit came a day after rival Royal Bank of Scotland (RBS.L) reported a 24 billion pound loss, the biggest in UK corporate history, and said the government's stake could rise as high as 95 percent as it put 325 billion pounds of assets in the UK protection scheme. [ID:nLQ259274]

Rival British bank Barclays (BARC.L) is also expected to put assets into the protection scheme, but its talks with the Treasury are not expected to become more detailed until after Lloyds has finalised the terms for its assets.

Lloyds agreed to buy HBOS in September after the owner of the Halifax came close to collapse due to its overdependence on wholesale borrowing. The government facilitated the deal by exempting it from competition rules.

Lloyds is 43 percent owned by the government after Lloyds and HBOS received a total of 17 billion pounds in public money as part of a government bailout of the banking sector in October. (Editing by Andrew Macdonald) ($1=.7004 Pound)