UPDATE 3-Spain defies opposition to push on with lottery IPO

* Plans market debut by first week of November

* Report says government mulling delay

* Opposition party against sale (Adds investor comment)

By Paul Day

MADRID, Sept 14 (Reuters) - Spain's plans to sell a stake in its state lottery operator are on course to be completed before a November general election, despite volatile markets and opposition from the likely new government.

Loterias y Apuestas del Estado said plans for what would be Spain's record initial public offering -- set to raise 7 billion euros ($9.6 billion) for state coffers -- had not changed, after El Mundo newspaper reported the government might delay the sale.

"I don't know where that comes from," Economy Minister Elena Salgado told reporters in Congress on Wednesday, when asked about the story. She said there was "no change" in plans.

"Once the stock market regulator approves the lottery's IPO prospectus, expected by the end of September, the process will begin for the company to list on the exchange before the first week of November, as expected," Loterias said in a statement.

Two sources close to the deal said analysts were due to begin meeting with investors next week to market the offering of a 30 percent stake.

The Loterias market debut target date was still October 18-20, one of the sources added.

Loterias, which saw its profit rise 3.5 percent in 2009 in spite of the economic downturn, is seen as an attractively steady asset in such uncertain markets.

"If the market was very bullish ... you would be thinking 'I don't want that, I want something much more aggressive'. So the timing is not particularly bad," said Jaime Ramos Martin, European equities fund manager at Standard Life Investment.

"The equity story is probably going to be safe and high yielding, so there will be plenty of investors for that."

One of the sources close to the deal said support from retail buyers, set to be offered up to 60 percent of the shares, also made it unlikely the sale would be derailed by a lack of investor interest.

"The issue is going to be purely political, in that 'Does the government want to sell it before the election?'," he said.

ELECTION FACTOR

Spaniards will elect a government on Nov. 20, and are poised to punish the governing Socialists -- in power for more than seven years -- over the European Union's highest unemployment rate and a sluggish economy.

The centre-right People's Party, which has a commanding lead in opinion polls, is against the Loterias sale, saying it would not help cut the public deficit.

Revenue from privatisation sales cannot be used to reduce a European country's deficit, according to EU rules, but can be used to cut the overall debt burden.

"The government is facing a dilemma between what Europe wants and its own country's opposition to a cheap sale. Selling the lottery too low is not good for Spaniards," said Enrique Quemada, head of boutique corporate finance firm ONEtoONE Capital Partners.

Spain's borrowing costs have soared, along with those of many euro zone countries, on fears the government has lost control of its finances after the public deficit hit 11.1 percent of gross domestic product in 2009.

The treasury has met 67 percent of its medium and long-term debt issuance plans for this year, but concern Greece may default has pushed financing costs to euro-era records at recent auctions.

"Selling this valuable asset is ridiculous, short-term thinking. It's like selling the family's luxury Aston Martin car for 2,000 euros to pay off a tiny amount of the mortgage," said Jaime Garcia Legaz, general secretary of conservative thinktank Faes.

According to the El Mundo report, the sale was in doubt because the price the government could achieve in current markets was too low.

Many companies across Europe have pushed back plans to launch IPOs due to choppy markets.

"Investors aren't desperate for assets, so they are still going to be quite brutal on pricing," said one of the sources close to the deal. "(Any decision not to go ahead) will definitely be a last-minute call."

Santander , BBVA , Goldman Sachs , UBS , JP Morgan and Credit Suisse are global co-ordinators of the offering. ($1 = 0.731 euro) (Additional reporting by Kylie MacLellan, Tracy Rucinski, Judy MacInnes and Chris Vellacott; Editing by Dan Lalor, Will Waterman and David Hulmes)