UPDATE 4-Qatar Barclays stake sale stokes Sainsbury talk

* Qatar sells $2.3 bln stake in Barclays, near $1 bln profit

* Fuels talk Qatar set to move on Sainsbury

* Qatar still top Barclays investor, and has more warrants

* Barclays shares down 5.4 pct; Sainsbury up 5.09 pct

(Adds confirmation of share sale)

By Steve Slater and Mark Potter

LONDON, Oct 20 (Reuters) - Qatar sold a 1.4 billion pound ($2.3 billion) stake in British bank Barclays (BARC.L) on Tuesday, stoking market expectations it will use a big profit to make a move on UK food retailer J. Sainsbury (SBRY.L).

Qatar owns 26 percent of Sainsbury and the retailer's shares jumped by a fifth last Thursday on talk the sovereign wealth fund was planning a renewed offer for it. A previous bid attempt failed in 2007. [ID:nLF602741]

Qatar Holding made a profit of about 600 million pounds ($985 million) by exercising half its warrants in Barclays and selling the shares.

It remains the bank's biggest shareholder, and is the second Middle-Eastern investor to make a big profit from Barclays this year, after Abu Dhabi made $2.5 billion on the sale of an 11 percent stake in June.

By 1338 GMT Barclays shares were down 5.4 percent at 361.35 pence. The Barclays share price has been on a steady rise since it hit a low of 55 pence in March 2009.

The shares were sold by Credit Suisse (CSGN.VX) through an accelerated bookbuild at 360 pence apiece.

Sainsbury shares were up 5.09 percent at 346.75p, valuing Britain's third biggest supermarket group at 6.3 billion pounds.

The Qatar Investment Authority (QIA) was mulling an offer at 420p per Sainsbury share, traders said last week, well below its 2007 proposal of 600p a share.

"I think around 5 pounds would be a more realistic price than the one people were talking about last week," said S&P Equity Research analyst James Monro.

Other analysts agreed a bid would need to be pitched at 500p or above, citing attractive property assets, an ambitious growth plans and the 15 percent stake still held by the Sainsbury family. [ID:nLG568012]

QIA bought most of its Sainsbury stake at 575 pence a share, and then some more at 595 pence.

Sainsbury and QIA declined to comment.

JENKINS LINK

Qatar will still hold a stake of about 7 percent in Barclays and said its move was part of its portfolio management programme and it intended to remain a long-term shareholder in the bank.

It sold 379.2 million shares after exercising warrants at a price of 197.775 pence.

Barclays will receive 750 million pounds from the warrants, which will boost its Core Tier 1 capital ratio by about 15 to 18 basis points to near 9 percent, from 8.8 percent at the end of June, including the sale of Barclays Global Investors.

Qatar Holding owns another 750 million pounds of warrants and Abu Dhabi's sovereign wealth fund owns 1.5 billion pounds of warrants, all exercisable at 197.775p apiece.

The warrants were part of a controversial 5.8 billion pound fundraising by the bank last November, when it avoided selling the UK government shares by raising money privately.

Roger Jenkins, a top Barclays banker who orchestrated that fundraising, left the bank in August and his new investment firm is working with Qatar, according to an industry source. A spokesman for the firm, which specialises in the Middle East, declined to comment. [ID:nLK651952]

QIA was founded by the State of Qatar in 2005 to strengthen its economy by diversifying into new asset classes. Subsidiary Qatar Holding is its main vehicle for strategic and direct investments by the state.

Singapore's Temasek fared less well than its Middle East rivals and is estimated to have lost over 800 million pounds on a holding in Barclays after selling out in December and January, when the shares were under 200p. [ID:nL3348122] (Additional reporting by Victoria Howley; Editing by Hans Peters and Marcel Michelson) ($1 = 0.6088 pound)