UPDATE 3-Mizuho shares up on possible rights issue report

* Mizuho shares higher on rights issue report

* UBS: Rights issue would take more time

* MUFG considered such a move, decided against it -source

* Tokyo bourse has changed rules to limit dilution (Recasts, adds background)

By Taiga Uranaka

TOKYO, Jan 14 (Reuters) - Shares of Japan's Mizuho Financial Group (8411.T) jumped nearly 6 percent after a media report that it was considering a rights offering as an option for raising funds, but analysts said the scheme may pose some logistic challenges.

Rights issues have become a more viable fundraising option for Japanese companies after the Tokyo Stock Exchange recently changed its rules on the process, limiting potential dilution. [ID:nTOE5BL05F]

Mizuho rival Mitsubishi UFJ Financial Group (8306.T), which raised about 1 trillion yen ($10.9 billion) by issuing new shares last month, also considered a rights issue, but decided against it given the added complexity and time required, said a source familiar with the matter.

"The process of a rights issue takes more time (than that of other fundraising methods), and it has not been done in Japan for a while, so I would be interested to see if a rights offering would go smoothly," said Nana Otsuki, bank analyst at UBS.

Under the new rules, companies can offer shareholders the right to buy a fraction of one share for every existing share held. The previous system required companies to offer the right to buy one new share for every existing one.

Mizuho is considering a rights issue to boost capital and is in talks with investment banks about a possible share sale in the financial year that begins in April, Bloomberg said, citing people familiar with the matter.

SHARES HIGHER

Mizuho spokeswoman Masako Shiono declined to comment on the report, saying the bank would take timely and appropriate capital actions in accordance with regulatory developments.

Shares of Mizuho, Japan's second-largest bank by assets, ended up 5.7 percent at 186 yen, outperforming a 2.3 percent gain in Tokyo's index of bank stocks. .INBKS.T.

The bank shed more than a third of its market value in 2009, hit by concerns that it would need a massive issue of new shares to help it meet stricter global regulations.

"There were widespread expectations in the market that Mizuho would be the bank that really needed to do a large fundraising. While of course we still don't know about the amount, the chance of a rights issue means that worries about dilution would be eased a bit," said Noritsugu Hirakawa, a strategist at Okasan Securities.

Another Mizuho rival, Sumitomo Mitsui Financial Group (8316.T), said this month it plans to raise up to 889 billion yen by issuing new shares.

Analysts have feared that Mizuho -- the worst-capitalised among Japan's top three banks -- would even need more than its rivals. Goldman Sachs estimated last year the bank might need 1.9 trillion yen.

Rights issues are very common outside Japan. Globally, $205 billion has been raised through rights issues this year, accounting for about a third of equity offerings, according to Thomson Reuters data.

The Basel Committee on Banking Supervision, made up of central bankers and supervisors from nearly 30 countries, published a draft of banking reforms last month, which called for stricter capital requirements. (Reporting by Taiga Uranaka, Elaine Lies and Taro Fuse; Editing by David Dolan)