UPDATE 2-Assured Guaranty to raise $550 mln in shares, notes

* Says offering to raise cash payment for FSA deal

* Offers $400 mln of shares, $150 mln of equity units

* Shares fall 13 pct (Recasts; adds Fitch comments, details, share movement)

June 16 (Reuters) - Bond insurer Assured Guaranty Ltd (AGO.N) said it will raise $550 million through an offering of shares and notes, to reduce the stock component of its deal to buy Financial Security Assurance Holdings Ltd, a subsidiary of Dexia SA.

Shares of the company, which have seen a five-fold rise since March, were down 11 percent at $12.56 in midday trade Tuesday, after touching a low of $12.30 earlier, on the New York Stock Exchange. Belgian-French financial group Dexia (DEXI.BR) (DEXI.PA) said in November last it would sell its troubled U.S. bond insurance subsidiary FSA to U.S. peer Assured Guaranty for $361 million in cash and 44.6 million new Assured shares, making for a total consideration of $722 million at that time.

The Bermuda-based provider of credit-enhancement products said it plans to offer $400 million of its common shares, with an over-allotment option of $60 million of shares.

The company will also offer 3 million equity units for $50 each to raise $150 million and it will have an over-allotment option of 450,000 units.

Fitch Ratings said it expects to assign an 'A' rating and 'Rating Watch Evolving' to the $150 million senior unsecured note issuance by the company.

Assured Guaranty and the world's largest municipal lender Dexia said last week they expected to close the sale of FSA on July 1, and Assured had the option to reduce, by up to half, the number of shares in exchange for cash at a price of $8.10 per share.

Assured Guaranty said due to the offering, the number of shares otherwise deliverable in the acquisition were reduced by up to about 22.28 million shares.

Merrill Lynch & Co and Deutsche Bank Securities Inc are joint book-running managers for the common share offering, while Merrill Lynch is the sole book-running manager for the notes offering.

Assured has largely escaped the credit problems that crippled rivals Ambac (ABK.N) and MBIA (MBI.N) by avoiding insuring repackaged subprime mortgages.

Investor Wilbur Ross, who made a fortune snapping up distressed companies, holds investments in a wide range of sectors from low-cost Indian airline SpiceJet Ltd (SPJT.BO) to Assured Guaranty.

Ross had provided a back-up commitment to fund the $361 million cash portion of the FSA deal.

Ross, the founder of New York-based private equity firm WL Ross & Co, said in March U.S. municipal bond buyers were doing the bulk of their business with Assured. The firm has captured 80 percent market share. (Reporting by Anurag Kotoky and Abhinav Sharma in Bangalore; Editing by Anne Pallivathuckal and Gopakumar Warrier)