RPT-UPDATE 4-UK's Lloyds prices record 13.5 bln stg rights issue

(Repeats to add cross reference to related column in fifth bullet point)

* Lloyds prices cash call at 37 pence per share

* 60 percent discount to Monday's close

* BoE says loaned almost 62 bln stg to HBOS and RBS

* Lloyds shares up 2 percent

* For a related column, double click on [ID:nGEE5AN1MW]

(Adds BOE loan detail, cross reference to graphic, updates shares)

By Clara Ferreira-Marques

LONDON, Nov 24 (Reuters) - Britain's Lloyds Banking Group Plc (LLOY.L) pushed ahead with the world's largest rights issue on Tuesday, setting a price of 37 pence per share as it taps shareholders for 13.5 billion pounds ($22.3 billion) to avoid costly state support.

The new shares were priced at a 60 percent discount to Monday's closing price and are being sold within the range previously indicated by the bank, offering investors a potentially attractive way to play a UK recovery.

"If you believe the UK economy is less bad than some would have you believe, then this is probably the granddaddy of all recovery stocks," said one major fund manager, who spoke on condition of anonymity. "The fact is, it's got the funding away, and shown it can be done."

At 1351 GMT, the shares were trading up 2 percent at 93.3p, outperforming a flat FTSE index of UK blue chip stocks and a 0.7 percent drop in the European banking sector .SX7P.

For a graphic on the world's top rights issues, click on:

here

Britain's largest retail lender said earlier this month it planned to avoid a costly government-backed insurance scheme for toxic loans and would instead turn to investors to raise a total of 22.5 billion pounds to repair a balance sheet badly depleted by the takeover of beleaguered rival HBOS.

The Bank of England said on Tuesday it had loaned almost 62 billion pounds to HBOS, which took Lloyds to the brink of collapse, and battered peer Royal Bank of Scotland (RBS.L) at the peak of the crisis last year, in what said was "a dire emergency". [ID:nGEE5AN1U3]

Lloyds' heavily discounted 13.5 billion pound cash call -- just larger than HSBC Holdings Plc's (HSBA.L) rights issue earlier this year -- comes alongside a 9 billion pound debt exchange and is a key plank of a capital-raising scheme underscoring rekindled investor enthusiasm for the banking sector as it recovers from the credit crunch.

In Europe the sector .SX7P has more than doubled in value from March lows on the back of unprecedented government support.

Analysts and investors said Tuesday's discount of 38.6 percent to the theoretical ex-rights price (TERP) -- still far heavier than already-hefty discounts of close to 30 percent seen at rivals Societe Generale (SOGN.PA) and BNP Paribas (BNPP.PA) last month -- was only marginally less than forecast.

But it removes a major element of uncertainty for the bank.

BARGAIN BASEMENT?

"We calculate the (theoretical ex-rights price) at 60p and we have a target price of 84p -- so that's 39 percent upside on what is going to be the largest mortgage bank in Europe," said analyst Arturo de Frias at Evolution Securities, who has a "buy" rating on the stock.

"The shares will be volatile during the rights issue period -- that is always the case with large rights issues -- but I would look through that."

Lloyds said earlier this month it expected the offer price to be at a discount of 38 to 42 percent to the theoretical ex-rights price (TERP) and analysts had expected a price of around 35p, in the middle of that range. [ID:nGEE5AM1D0]

Lloyds, however, came in with a slightly less aggressive discount than expected, with a discount to TERP of 38.6 percent.

Lloyds, 43 percent owned by the UK government after it was bailed out last year, is now set to seek shareholder approval for its plan to offer 36.5 billion new shares.

One of its key challenges will be its shareholder base, which includes 2.8 million retail investors -- the largest base of small shareholders among UK companies.

The bank said the average retail shareholder would pay 366.7 pounds to take up their rights.

The UK government, however, will pay up around 5.8 billion pounds -- or almost 240 pounds per UK household.

Analysts and investors expect a relatively strong takeup and interest in the stock, not least because of the effect of the enlarged free float on Lloyds' position in stockmarket indexes, which forces in tracker funds to maintain their weightings.

It will offer the stock on the basis of 1.34 new shares for each existing, the bank said.

As part of its bumper capital raising, Lloyds said on Monday it is also swapping existing debt into contingent or "top up" capital, which converts into common equity during a period of financial strain to shore up a bank's capital position.

It said demand for that exchange offer was strong, with offers of 12.5 billion pounds from investors received for an 8.78 billion bond exchange, allowing the bank to raise the maximum 8.5 billion in contingent core tier 1 and core tier 1 capital. [ID:nLK695084] (Additional reporting by Joel Dimmock; Editing by David Holmes) ($1=.6020 Pound)

((For a factbox on the cash call, click on [ID:nGEE5AN0KZ]; For a factbox on the top 10 rights issues, click on [ID:nL3550254]))

((clara.ferreira-marques@reuters.com; +44 207 542 3214; Reuters Messaging: rm://clara.ferreira-marques.reuters.com@reuters.net))