UPDATE 1-Banco Popular shares rise after capital increase

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MADRID Nov 12 (Reuters) - Banco Popular shares rose on Monday after Spain's sixth-biggest bank secured a 2.5 billion euro ($3.2 billion) capital increase, averting the need to seek state aid.

At a special meeting in Madrid on Saturday, large shareholders backed the plan, seen as a key test of Spanish banks' ability to tap markets.

Popular is offering three new shares at 0.401 euro apiece for every existing share in a rights issue at a 64 percent discount to Friday's closing price, compared with the 55 percent discount expected by analysts.

Its shares were up 5.5 percent to 1.1790 euros at 0910 GMT, below an early high at 1.2510 euros.

Popular has been one of the hardest hit by a property crash that produced billions of euros in toxic real estate assets, and it was the largest non-nationalised Spanish entity to fail a stress test in September.

That independent audit, by Oliver Wyman, showed Popular needed an extra 3.2 billion euros to weather a serious economic downturn, prompting the bank to announce the share issue in a bid to remain independent.

"It (capital increase) will allow Popular to eliminate its capital shortfall established during the last stress test. All in all, we see the extraordinary shareholder meeting as a milestone in a well-flagged recap process," Goldman Sachs said in a research note to clients.

Large institutions, including German insurer Allianz , said they would vouch for at least 80 percent of the rights issue. ($1 = 0.7868 euro) (Reporting By Jesús Aguado; editing by Clare Kane)