UPDATE 1-Russia VTB plans share issue at premium -source

* VTB considering share placement at premium to market

* Investors see no demand for shares if selling at premium

* Shares up 3.0 percent

(Adds portfolio manager comment, back ground, share price)

MOSCOW, Aug 7 (Reuters) - VTB (VTBR.MM), Russia's second biggest lender, is considering a secondary share issue at a premium to the market price, a source familiar with the bank's plans told Reuters on Friday.

State-controlled VTB has reported a net loss of 20.5 billion roubles ($657.5 million) for the first quarter as provisions for bad loans rose and it has been planning to raise at least 180 billion roubles through a secondary public offering by October.

"They are discussing the placement at a 'market price plus' price. A discount (to the market price) is not under consideration," the source said.

Shares at VTB were up 3 percent at 1302 GMT, outperforming the broad market index , which was up 2 percent.

Russia's government has already allocated 180 billion roubles to top up the capital of VTB, but portfolio managers and analysts doubt investors will be willing to pay a premium for the shares. [ID:nL4371084].

"Should the bank place new shares at a premium there will be no buyers except for the state," Andrey Kilin, portfolio manager at Troika Dialog said.

VTB's management has repeatedly said the bank should be valued at no less than its book value by the end of 2010. The bank currently trades at 0.71 of its book value, according to Reuters data.

VTB started to accept subscriptions for the planned share placement from existing shareholders earlier this week. (Reporting by Olga Popova, writing by Dmitry Sergeyev, editing by Toni Vorobyova/Will WAterman)