UPDATE 1-Lloyds Banking improves terms on bond exchange offer

LONDON, April 7 (Reuters) - Lloyds Banking Group (LLOY.L) on Tuesday sweetened the terms of its 7.5 billion pound ($11.2 billion) debt swap offer to reflect the recent rally in subordinated bond prices.

Lloyds has increased the spreads offered on new senior bonds offered in exchange for existing Upper Tier 2 bonds by 25 basis points, the bank said in statement.

The new terms apply to all bondholders who apply to participate in the offer by the deadline at 1500 GMT on Tuesday.

The revised spreads on the four new sterling and euro senior notes are 325 basis points and 350 basis points. ($1=.6702 pounds) (Reporting by Natalie Harrison and Jane Baird)