UPDATE 1-S.Korea KDB wants Daewoo Eng sale in auction -paper

* KDB wants 50 pct plus 1 share in Daewoo to be sold -paper

* Kumho Asiana says no decision for details on Daewoo sale

(Adds FSS governor comment, more Kumho Asiana quotes)

SEOUL, June 30 (Reuters) - Korea Development Bank (KDB), the main creditor for the parent of Daewoo Engineering (047040.KS), wants a majority stake in the builder to be put up for sale in an auction, a newspaper reported on Tuesday, citing the bank's CEO.

The Chosun Ilbo quoted KDB Chief Executive Min Euoo-sung as saying that creditor banks wanted Kumho Asiana Group, which controls 72 percent of Daewoo Engineering & Construction together with financial investors, to offer 50 percent plus one share in the firm to markets.

"Selling Daewoo Engineering & Construction to markets will come ahead of a plan that KDB buys it through a private equity fund (PEF)," Min told the daily.

"Sale to a PEF cannot fetch a high price. If the sale goes through at a good price in markets, Kumho Asiana will be able to narrow losses from the sale and this in turn will benefit creditors."

A KDB spokesman said the bank could not immediately confirm the report.

KDB had proposed that business groups sell their assets to a private equity fund, which the state-owned bank was set to launch, at a premium to help them improve cash flows and restructure themselves.

Financial investors, including fund house Mirae Asset and domestic banks, own a combined 39 percent in the former unit of the failed Daewoo Group.

They have a right to sell their holdings to Kumho Asiana at 31,500 won ($24.65) per share later this year in a "put back option", more than double Daewoo's current price.

That option would have left Kumho liable for about 4.2 trillion won as of the end of March, analysts said.

Financial Supervisory Service Governor Kim Jong-chang said at a seminar that Kumho Asiana's move to sell Daewoo Engineering was a "brave decision", adding that if the public sale failed, the KDB-led private equity fund would take it over.

Lee Jae-won, Kumho Asiana Group spokesman, said the schedule and details of the Daewoo Engineering sale plan would depend on market circumstances, and the group had yet to pick an adviser for the forthcoming deal.

"But we are well aware that there is a time limit. If the financial investors exercise the put-back option, which is due on December 15, we have to pay them back by June 15, 2010," he said.

Shares in Daewoo Engineering, the country's No. 3 builder, soared by its daily limit of 15 percent on Monday after its cash-strapped controlling shareholder, Kumho Asiana Group, said it aimed to sell its stake. [ID:nSP482036]

Kumho said on Sunday it might consider various ways to unload Daewoo, such as the sale of a 39 percent stake held by financial investors including management rights, the sale of a 50 percent stake plus one share, and the sale of a 72 percent stake owned by the group and financial investors.

Daewoo shares were trading 4.0 percent lower at 13,200 won by 0202 GMT, underperforming the wider market's .KS11 0.86 percent gain.

($1=1278.0 Won)

(Reporting by Kim Yeon-hee and Shin Jieun; Editing by Ken Wills)