Azrieli IPO raises 1.7 bln shekels in 1st stage

* Offering falls short of price hoped for

* Blames markets, flotilla events for lower price

JERUSALEM, June 1 (Reuters) - The Azrieli Group said on Tuesday it raised 1.7 billion shekels ($443 million) from institutional investors in the first phase of the largest ever initial public offering of a private firm on the Israeli bourse.

The group, which is controlled by Canadian businessman David Azrieli, is seeking to sell a 25 percent stake on the Tel Aviv Stock Exchange -- 23 percent to institutional investors and 2 percent to the public, which will be carried out on Thursday.

The offering was lower than the price it had hoped for and only secures it a place in the TA-100 index .TA100.

It had hoped to raise some 2.73 billion shekels for the 25 percent stake for a company value of 10.9 billion, which would have secured it a place in the blue-chip Tel Aviv 25 .TA25 index.

"The Azrieli group notes that the deterioration in markets in recent days and the dramatic political and security developments that unfolded in the wake of the flotilla to Gaza led to fear among investors," the company said.

Nine foreign activists were killed on Monday when Israel intercepted a flotilla carrying aid to the Gaza Strip, sparking international condemnation. [ID:nLDE64U28C]

"It should be noted that despite the complicated situation, the company managed to win over investor confidence -- 107 institutions -- and to complete an unprecedented offering," the Azrieli Group said.

Azrieli has numerous investments in Israel, including several shopping malls. Last year, the group bought a 4.83 percent stake in Bank Leumi (LUMI.TA), Israel's largest bank, for 740 million shekels.

($1 = 3.87 shekels) (Reporting by Joseph Nasr, Editing by Sharon Lindores)