UPDATE 2-Lottomatica seeks $524 mln to fund scratchcard bid

* Plans 350 mln euro capital increase

* Funds to go on scratchcards, video gaming terminals

* Shares up 2.6 percent

(Adds analysts, more details, shares)

By Marie-Louise Gumuchian

MILAN, Oct 20 (Reuters) - Italian gaming company Lottomatica (LTO.MI) on Tuesday announced plans for a smaller-than-expected capital increase of up to 350 million euros ($524.1 million) to pay for a new scratchcard concession and videolottery terminals.

Lottomatica is the only bidder for up to four new scratchcard concessions put out to tender by Italy's government and its CLN consortium with Scientific Games (SGMS.O) has to pay an 800 million euro up-front fee.

The capital raising is smaller than the some analysts had expected, boosting the company's shares after they were suspended from trading on Monday pending a statement. At 1017 GMT, the shares were up 2.6 percent at 16.73 euros.

Lottomatica said new shares issued in the capital hike will back a bond to be issued by UBI Banca (UBI.MI) that is mandatorily exchangeable into Lottomatica shares when it matures in 2012.

Other potential bidders for the scratchcard concession that runs from June 2010, such as Italy's Snai (SNAI.MI), unlisted Sisal and Greece's Intralot (INLr.AT), said they were put off by the onerous conditions such as the large upfront fee.

Lottomatica will have to pay 315 million euros for its share of the fee in November and another 189 million by November 2010, representing its 63 percent interest in its consortium, it said.

In addition, the company has to pay 81 million euros for rights to install videolottery terminals it has won, it said.

A Milan-based analyst, who asked not to be named, said the 350 million euros fundraising is "the minimum amount they need" and that a larger amount would have been preferable, adding the operation favours the bond holders.

Another Milan analyst said the positive share reaction reflects the smaller-than-expected capital increase -- he had expected 500 million euros -- and higher fees on the new concession compared with the existing one.

The mandatory exchangeable bonds to be issued by Ubi Banca (UBI.MI) will be offered to professional investors in Italy and abroad. Mediobanca (MDBI.MI) will be global coordinator and book-runner for the operation.

In addition, Mediobanca will act as depositary bank for the newly issued Lottomatica shares.

Lottomatica has built up scratchcards in Italy to 9 billion euros of bets a year, though some analysts say the game has reached maturity.

Lottomatica's Italian lottery revenues, including scratchcards, fell 2 percent in the first half to 361 million euros out of a total 1.099 billion euros revenues.

(Writing by Nigel Tutt; Editing by Erica Billingham)