* Shares priced at 20 euros a piece, in middle of range
* Largest listing in continental Europe since 2011
* Values NN Group at around 7 bln euros
* ING expects gross proceeds of 1.5 bln euros (Adds analyst comment)
By Anthony Deutsch and Thomas Escritt
AMSTERDAM, July 2 (Reuters) - Shares in NN Group, the insurance arm of Dutch financial services company ING Group, rose as much as 7 percent on their stock market debut on Wednesday, in the largest listing in continental Europe for three years.
The flotation was a sign of continued strong demand for European new share issues this year, following a barren spell in the wake of the 2008 financial crisis.
It also marked a major step on the path to recovery for ING Group, which is slimming down to focus on banking to meet the terms of a 10 billion euro state bailout.
ING priced the shares at 20 euros each late on Tuesday, the middle of the expected range and valuing NN Group at roughly 7 billion euros ($9.6 billion). The shares rose as high as 21.47 euros early Wednesday, and were at 21.31 euros by 0945 GMT.
"Companies are coming back to the capital markets," Euronext Amsterdam boss Cees Vermaas said in an interview with Reuters.
He said NN Group was the largest company by market value to list in continental Europe since 2011 and that it was the sixth initial public offering (IPO) in Amsterdam this year, with a cumulative 22 billion euros raised.
ING said it expected the listing to raise about 1.5 billion euros. It had increased the number of ordinary shares being listed by 10 percent to 77 million due to "significant" investor demand. The listing is largest insurance IPO in the European Union by amount raised since Poland's PZU in 2009.
ING, formerly one of the world's largest banks and insurers, has sold off tens of billions of dollars in foreign assets, radically reshaping itself to comply with the terms of its state rescue, shedding thousands of jobs.
"We remember how we built this company and it's a mixed emotion," ING Group chief executive Ralph Hamers said at the Amsterdam stock exchange. "We had to change course. We had to end one era to start a new one. The listing today is the final step in turning ING from bancassurer into a bank."
The offering will have an estimated negative impact of approximately 3.4 billion euros on ING Group's shareholders' equity, to be booked in the third quarter, it said.
ING's ownership of NN Group will be reduced to 71.4 percent, excluding the possible exercise of a 15 percent over-allotment option. It is to sell its remaining stake by 2016.
The bank said it intended to use the net proceeds of the offering to cut debt.
"NN Group is very attractive at this level, based on valuation compared to its peers," said Salah Lemer of ESN/SNS Securities. "They have a good portfolio, balanced with both mature and emerging markets, and there is positive market sentiment about financials."
Lemer said NN Group is trading at a discount of 40-50 percent compared to its main rivals, based on price-to-book value. "All those factors, including a clear dividend policy, are playing a role today," he said.
Of the shares being offered, approximately 94.8 percent were allocated to international institutional investors, from Europe, Asia, the United States and Britain. Around 5.2 percent went to Dutch retail investors, ING said.
The deal received over 250 orders from investors, with 30 percent getting no allocation, a source close to the deal said. The top 10 allocations, including anchor investors, received around 45 percent of stock sold.
The cash raised in European IPOs this year rose almost 250 percent to $41.2 billion through June 30. But there have been recent signs of cooling as investors become more selective.
Still, shares in Dutch specialty chemicals distributor IMCD rose nearly 5 percent on their first day of trading in a 462 million euro flotation in Amsterdam last week.
NN Group, which has a strong position in the Dutch domestic market, a substantial European presence, operations in Japan and a global investment management business, said it would pay a one-off dividend of 175 million euros next year on profits in the second half of 2014.
ING is due to pay back its final tranche of state aid with a 1.025 billion euro payment in May 2015, a move that could allow it to resume paying dividends.
($1 = 0.7331 euros) (Additional Reporting By Freya Berry and Thomas Escritt; Editing by Andrew Hay, Susan Fenton and Mark Potter)