UPDATE 3-DnB NOR rights discount signals sector recovery

* Issue price at 27 pct discount vs 40 pct for Swedish peers

* To issue 296.1 mln shrs at 47.30 crowns to raise $2.5 bln

* Subscription to run Nov. 26-Dec. 10.

* Says issue to gain flexibility, not for large M&A

* Shares down 0.8 pct

(Adds CEO comments, updates share price)

By Richard Solem and Aasa Christine Stoltz

OSLO, Nov 19 (Reuters) - Norway's biggest bank, DnB NOR DNBNOR.OL, set the price in its $2.5 billion rights issue on Thursday at a discount that, though large, was small enough to signal a recovery of sorts in demand for Nordic bank stocks.

DnB NOR will join a long string of lenders in the region and elsewhere that have replenished their funds, but its discount of about 27 percent compares well with discounts of 40 percent or more for rights issues in Sweden earlier this year.

DnB NOR's proposals for terms, including the 47.30 crowns per share subscription price, was approved by a shareholder meeting on Thursday. It was backed by Norway's government, which will keep its 34 percent stake in the bank.

The company's shares were down 0.8 percent to 67.80 crowns by 1008 GMT, mirroring the fall in Oslo's main index .OSEBX. Since hitting a 15-year low in January, the stock is up more than 350 percent.

"In line with current market practice, the subscription price corresponds to a discount of approximately 26.7 percent to the implied theoretical ex-rights price of NOK 64.52 based on DnB NOR's closing share price on 18 November 2009," DnB NOR said.

The price represents a 31 percent discount to the unadjusted closing price on Wednesday.

DnB NOR announced the issue on Sept. 25 after having decided not to tap Norway's banking sector relief fund.

DnB NOR's Chief Executive Rune Bjerke said the rights issue was not due to "fear of increased losses" and repeated its 2009 loan loss guidance of 8-10 billion Norwegian crowns and that losses in 2010 could be "somewhat higher" than in 2009.

DnB NOR said it had no plans for large acquisitions, but that it did not rule out minor deals.

"We want to increase our flexibility concerning new business opportunities ... these are first and foremost organic opportunities," Bjerke said.

"After this issue, DnB NOR will appear as a more solid bank," he said.

Many Scandinavian banks have been hit by soaring loan losses, especially in the crisis-stricken Baltic states. DnB NOR has a smaller exposure to the region, but is heavily exposed to the shipping sector, which has been hit hard by the slump in global trade.

Bjerke said losses in the Baltic region may have peaked. In October it said outlook for the region remained one of "great uncertainty".

LOWER DISCOUNT THAN NORDIC PEERS

One analyst said the discount in the issue was lower than expected, while another said it was in line with expectations.

"The discount in this share issue was smaller than what we have seen for the Swedish banks -- they got a discount around 40 percent, while DnB NOR's discount was about 27 percent," analyst Christoffer Adams at SEB Enskilda said.

Analyst Fridtjof Berents at Arctic Securities said the price was in line with expectations and reflected improving markets.

"The discount below 30 percent reflects that the market has stabilised significantly since earlier this year," Berents said.

"The timing seems to be more favourable now than earlier this fall," Bjerke said.

Swedbank (SWEDa.ST) tapped investors for more capital in October after making a cash call in 2008, amid concerns over its exposure in the Baltics. Peers Nordea (NDA.ST) and SEB (SEBa.ST) have also carried out rights issues this year. [ID:nLB116002] [ID:nL4475518] [ID:nLH518937].

Morgan Stanley, DnB NOR Markets and Citi are acting as joint global coordinators and joint bookrunners in the rights issue. (Additional reporting by Camilla Bergsli and Joachim Dagenborg; Editing by Simon Jessop and Joel Dimmock, editing by Will Waterman) ($1=5.576 Norwegian Crown)