UPDATE 1-RESEARCH ALERT-KBW upgrades Sovereign Bancorp

(Changes source, recasts, adds details, share movement)

May 9 (Reuters) - Keefe, Bruyette & Woods upgraded Sovereign Bancorp Inc (SOV.N: Quote, Profile, Research) to "market perform" from "underperform," a day after it was reported that the second-largest U.S. savings and loan plans to raise just over $1 billion in an equity offering to help it navigate a difficult economic environment.

Reports also suggested that the equity offering would be broadly distributed to institutional investors and likely be conducted over the weekend.

"The combination of a meaningful capital raise, elimination of the common dividend, and further balance sheet de-leveraging, via the runoff of non-core assets, should clearly help to bolster Sovereign's capital," KBW said in the note to clients.

By raising capital, Sovereign would join a growing list of U.S. banking companies to do so this year, including Citigroup Inc (C.N: Quote, Profile, Research) and Washington Mutual Inc (WM.N: Quote, Profile, Research), the largest thrift.

Shares of the company were up about 4 percent at $7.76 in morning trade on the New York Stock Exchange. (Reporting by Swagata Gupta in Bangalore; Editing by Gopakumar Warrier)