UPDATE 3-Treasury to sell warrants to buy Capital One stock

* Treasury to sell 12.66 million warrants

* Warrants to be auctioned on Thursday

* Capital One shares fall 0.7 percent to $38.09 (Recasts, adds auction set for Thursday)

WASHINGTON, Dec 1 (Reuters) - The U.S. Treasury Department on Tuesday said it will auction off warrants to buy stock in Capital One Financial (COF.N) on Thursday, in what would be the first sale of such assets acquired under the government's bank bailouts.

Treasury said last month it would auction off stock warrants it received from Capital One and two other big banks that got taxpayer-funded cash infusions under the government's $700 billion Troubled Asset Relief Program.

Capital One received $3.55 billion in taxpayer funds last year in exchange for stock warrants and preferred shares after big credit card losses. The bank -- one of the largest U.S. issuers of Visa and MasterCard branded credit cards -- repaid the taxpayer funded bailout earlier this year.

"The proceeds of this sale will provide an additional return to the American taxpayer from Treasury's investment in the company beyond the dividend payments it received on the related preferred stock," the Treasury said in an announcement.

The Treasury also has plans to auction off its warrant positions in JPMorgan Chase & Co (JPM.N) and TCF Financial Corp (TCB.N).

Each of those banks has fully repurchased the Treasury's investment in preferred stock. If the warrants are sold, the government will have no remaining holdings in the companies, the Treasury has said.

The Treasury said it is selling about 12,657,960 warrants to purchase Capital One common stock through a modified Dutch-style auction.

Bids will be accepted at any price in increments of 25 cents at or above the minimum bid price of $7.50 per warrant. The minimum bid size is 100 warrants, the Treasury said in a filing with the Securities and Exchange Commission.

Each warrant gives the right to purchase one share of Capital One at an exercise price of $42.13. The warrants will expire on Nov. 14, 2018.

Auction agent Deutsche Bank Securities Inc. will auction the warrants from 8 a.m. to 6:30 p.m. (1300-2300 GMT) on Thursday, Treasury said.

The bank's shares closed at $38.09 on Tuesday on the New York Stock Exchange. The stock is up 19 percent this year and has increased almost five times hitting a 13-year low of $7.80 in March.

Deutsche Bank Securities is the sole book-running manager, and Siebert Capital Markets is the co-manager for the offering.

Capital One once specialized in credit cards but expanded into branch banking in recent years after acquiring Hibernia Corp and North Fork Bancorp Inc. More recently, the acquisition of Chevy Chase Bank expanded its presence in the affluent suburbs of Washington, D.C. (Reporting by Mark Felsenthal, additional reporting by Juan Lagorio in New York; Editing by Leslie Adler) ((mark.felsenthal@thomsonreuters.com; +1 202 898 8329; Reuters Messaging: mark.felsenthal.reuters.com@reuters.net))