Morgan Stanley raises $3.5 billion in stock sale

NEW YORK (Reuters) - Investment bank Morgan Stanley on Friday said it priced an offering of 146 million common shares at $24 each, raising a more-than-expected $3.5 billion in new equity but at a discount of nearly 12 percent to its Thursday closing price.

The bank said on Thursday, just before federal regulators announced that it needed to boost capital by $1.8 billion, that it would sell $2 billion in stock. People familiar with the matter had told Reuters the offering was oversubscribed.

Morgan Stanley also increased the size of its senior note offering to $4 billion from $3 billion, an important vote of confidence in the bank because the debt is not guaranteed by the Federal Deposit Insurance Corp.

The oversubscribed debt offering, split evenly between 5-year and 10-year tranches, paves the way for Morgan to repay $10 billion of capital received last fall from the U.S. Treasury under the Troubled Asset Relief Program.

The five-year notes were priced at 3.90 percentage points over Treasury rates, while the 10-year notes were priced at 4.00 points over Treasuries.

The stock and debt offerings followed the public announcement of how 19 major U.S. financial institutions fared under the federal government's "stress tests."

Morgan Stanley shares closed at $27.14 on Thursday on the New York Stock Exchange.

(Reporting by Phil Wahba and Joseph A. Giannone; editing by John Wallace)