(Repeats to fix dateline)
* Irish Fin Min says sale gives strong international signal
* Deal will reduce state's recapitalisation bill by 1.1 bln
* Bank of Ireland shares up 8.9 percent
By Conor Humphries and Padraic Halpin
DUBLIN, July 25 Ireland sold a 1.1 billion euro ($1.6 billion) stake in Bank of Ireland to a group of unidentified investors on Monday to keep the country's largest bank out of state hands and provide a rare boost to a battered sector and bruised economy.
The government had been widely expected to take control of Bank of Ireland, the last domestic lender outside of state ownership, after it agreed to underwrite a rights issue, the results of which are due on Tuesday.
However -- after the sale and rights issue -- the government will now own maximum 32 percent in the bank while new investors will hold between 14 and 37 percent, the finance ministry said.
"It has been recited far and wide that it is impossible for Ireland to get money on the markets," Finance Minister Michael Noonan told national broadcaster RTE.
"Now we have significant private sector investors prepared to put money into Bank of Ireland and that's a strong signal internationally."
It is the second significant boost for the Irish government after European partners last week agreed to cut the rate it is charging for a multi-billion euro bailout by 2 percentage points, a change Dublin says could save it up to 1 billion euros per year.
Dublin, which has closed two of its six domestic lenders, merged another two state-controlled institutions and will soon take over a fifth. It has put a 70 billion-euro price on drawing a line under its banking crisis after stress tests in March.
Bank of Ireland was told to raise 4.2 billion euros in additional core tier one capital following stress tests in March. The tests were required under the terms of the 85-billion euro EU-IMF bailout Ireland received late last year.
The state has shrunk the bill for bailing out its banks by around 5 billion euros by sharing losses with subordinated debt holders. Bank of Ireland raised 1.96 billion euros by hitting junior bond holders with losses of up to 90 percent and expects to secure another 510 million from further burden sharing.
The bank's shares, which reached nearly 12 euros in early 2007 when Ireland's property boom was at its height, cost 11 euro cent on Monday, up 8.9 percent on the day.
"Foreign investment in Bank of Ireland is an important milestone for the government... It sends a positive signal to the market after what has been a fairly miserable 18 months for the Irish banking sector," Dublin-based Glas Securities wrote in a note.
RIGHTS ISSUE BOOST
Under Monday's deal the investors will initially purchase 241 million euros worth of the state's shareholding. They will then purchase the remainder of up to 882 million euros after regulatory approvals. In all they will purchase 4.2 billion ordinary shares.
Noonan said the identity of the investors should be known by Friday. Local media have said private equity firm TPG Capital held talks with the bank and that a Chinese entity and a Canadian investment fund were also interested.
Depending on the results of the rights issue, Ireland will end up with between 15 and 32 percent of the bank. Existing shareholders will hold between 31 and 71 percent and the new investors will hold between 14 percent and 37 percent.
While analysts still expect a weak take-up of the 10 euro cent a share, 18-for-5 rights issue rights issue -- the bank's second call on shareholders in the space of a year -- the share sale may help nudge interest up a little.
"With many investors likely to have waited until the last moment to make their decision, it is possible that the level of take-up may nudge upwards as investors get enthused by interest shown in the bank," said Eamonn Hughes, analyst at Goodbody Stockbrokers. ($1 = 0.696 Euros) (Editing by David Holmes and Sophie Walker)