UPDATE 2-Raiffeisen kicks off share sales by European banks
* Raiffeisen aims to boost capital by up to 2.25 bln euros
* Others seen following ahead of ECB stress tests
* PwC sees European banks raising 180 bln euros this year (Recasts with comments on broader banking sector)
VIENNA, Jan 9 (Reuters) - Austria's Raiffeisen Bank International has kicked off a year of capital raising by European banks keen to convince regulators and investors that they are robust enough to weather any more financial storms.
Central and eastern Europe's second-biggest lender said late Wednesday it could sell up to 2.25 billion euros ($3.06 billion) of shares, boosting its equity capital by about 40 percent to beef up its finances and help repay state aid.
Its stock fell as much as 9 percent on Thursday after the long-anticipated move that would dilute earnings per share.
The plan highlights efforts by banks to ensure they comfortably pass so-called stress tests by regulators this year.
The European Central Bank is scrutinising the balance sheets of major euro zone banks ahead of taking over direct supervision of them in November in a move aimed at restoring investor confidence in a region battling to recover from a debt crisis.
The tests are expected to reveal capital shortages where banks have not set aside enough to cope with bad loans.
Accountants PwC said in a report published in November that European banks may need to fill a capital hole of some 280 billion euros in 2014, equivalent to more than seven times the entire market value of Deutsche Bank.
While banks will try to plug the gap by retaining earnings, selling assets and raising debt, PwC forecast they would seek around 180 billion euros of the money from equity investors.
"The golden rule of thumb is always try and go before the market knows for sure that you need capital. You lose leverage if you are trying to tap markets when you absolutely must," said one equity capital markets (ECM) banker in London.
While Raiffeisen is the first out of the blocks in 2014, many other European banks, particularly in the economically weaker peripheral countries, are set to follow.
Italy's third-largest lender Banca Monte dei Paschi di Siena , for example, is under pressure to complete a 3 billion euro share sale and avoid the threat of a state takeover. A stand-off between management and shareholders at the world's oldest bank has delayed the plan, originally pencilled in for this month, until mid-May, when it could face competition from other capital-hungry lenders.
Italy's Banca Popolare di Milano has also approved a 500 million euro capital increase by end July.
The good news for capital-hungry banks is that investor sentiment towards the sector appears to be improving following steps already take to bolster their finances and as even the worst hit euro zone economies move out of recession.
The pan-European banking index is trading at its highest level since April 2011, with dealers reporting strong demand from U.S. institutional investors, although it is still more than 60 percent below pre-crisis levels.
"The market environment is good, now also for banks in peripheral European countries. Southern banks are natural candidates. But it won't be very large recaps, it will rather be medium-sized ones," one German banker said.
The London-based banker said he also expected a significant increase in banks issuing so called contingent capital - or "coco" - hybrid bonds that they can use to improve tier 1 capital ratios, a key measure of financial strength under tough new global capital rules that are being phased in.
Raiffeisen plans to issue such additional Tier 1 capital of up to 500 million euros over the next 12 months.
Banks have already started to beef up their balance sheets.
The financial sector was by far the biggest for ECM issuance last year in Europe, the Middle East and Africa, with $80.5 billion raised, accounting for 34 percent of all ECM proceeds, according to Thomson Reuters data.
The sale of bank shares - either capital hikes or government sell-downs - made up four of the five biggest ECM deals in the region in 2013, with Barclays' $9.9 billion capital raising topping the deals list.
In Raiffeisen's case, selling shares would help replace 2.5 billion euros in non-voting capital that it raised during the financial crisis from the state and private investors but which won't count as core tier 1 capital after 2017.
Raiffeisen shares trimmed their losses to stand down 3.3 percent by 1210 GMT in a European bank sector up 0.6 percent.
News that unlisted majority owner Raiffeisen Zentralbank was ready to play a substantial role in any capital hike by the bank helped sentiment.
Expectations for a share sale have kept Raiffeisen stock trading at around 8 times 12-month forward earnings, a discount to rival Erste Group on around 12 times, according to StarMine, which weights analysts' estimates by their previous forecasting accuracy.
Raiffeisen mandated Deutsche Bank, UBS and Raiffeisen Centrobank to handle the capital increase.
($1 = 0.7353 euros) (Additional reporting by Arno Schuetze in Frankfurt and by Kylie MacLellan and Laura Noonan in London; Editing by Erica Billingham and Mark Potter)