Facebook says no secondary offering to cover tax bill

The Facebook logo is seen on a screen inside at the Nasdaq Marketsite in New York May 18, 2012.

SAN FRANCISCO (Reuters) - Facebook Inc promised not to sell stock to cover a nearly $2 billion tax bill and said it will allow employees to cash in their stock weeks ahead of schedule, moving to soothe nervous investors and its own staff as its share price spirals downward.

The world's largest online social network company, which has lost more than 50 percent of its market value since going public in May, said on Tuesday its total shares outstanding will be reduced by roughly 101 million shares as a result of the move.

Shares of Facebook gained 1.8 percent in after hours trading on Tuesday to $18.05.

Facebook will cover the stock compensation tax bill with existing cash and with borrowing from its credit facilities, the company said in a regulatory filing.

Chief Executive Mark Zuckerberg will not sell any shares in Facebook for at least 12 months, while directors Marc Andreessen and Donald Graham will sell some shares to cover their tax obligations, according to the filing.

Facebook said it has waved a "market stand-off provision" that prohibited employees from selling shares until November 14. As a result, employees will now be able to sell their vested shares on October 29 - four trading days after it reports third-quarter financial results.

About 234 million shares held by employees will be eligible for sale in the public market on October 29, it added.

Facebook has suffered a painful debut on the public markets, as investors have fretted about its slowing revenue growth and a large pool of additional shares set to hit the market. More than 1 billion Facebook shares held by employees, insiders and early investors are set to become available for trading by year's end.

(Reporting By Alexei Oreskovic; Editing by Tim Dobbyn and Richard Chang)