UPDATE 1-Russia's VEB sold blue chips to buy Rostelecom

* VEB completes purchase of a 10 pct stake

* The bank sold some Russian shareholdings to finance deal

(Adds background, details)

MOSCOW, July 21 (Reuters) - State-controlled Russian bank VEB bought 10 percent of former national long-distance telecoms monopoly Rostelecom ROS.N using funds raised by selling some of its local share portfolio, the head of the bank said Tuesday.

VEB was tasked by the Russian government to support the local stock market after its collapse last September and has spent around 160 billion roubles ($5 billion) buying stakes in Russian blue chips including Sberbank SBER03.MM, LUKOIL (LKOH.MM) and Norilsk Nickel (GMKN.MM).

"Some instruments (in VEB's portfolio) are changing in favour of other ones. So recently we have purchased a large stake in Rostelecom," the head of VEB, Vladimir Dmitriev said.

VEB did not disclose the purchase price.

Russia's troubled KIT Finance bank earlier approved the sale of a 30 percent stake in Rostelecom to Russia's state Deposit Insurance Agency for 50.3 billion roubles as part of an overall bailout package. [ID:nLF138250] (Reporting by Oksana Kobzeva, writing by Dmitry Sergeyev, editing by Will Waterman)