UPDATE 2-Strong demand for Kimco shares raises REITs

* Strong demand prompts company to boost offering

* Shares rise 25.5 percent

* REIT Index up 9.1 percent. (Recasts first sentence, adds sector stock, updates share closing price, adds analysts comments, byline)

By Ilaina Jonas

NEW YORK, April 3 (Reuters) - Shares of shopping center owner Kimco Realty Corp (KIM.N) closed up 25.5 percent on Friday after strong demand for its stock offering prompted the company to increase the number of shares offered, lifting the badly beaten real estate investment trust (REIT) sector.

Kimco sold 91.5 million shares, up from the previously expected 70 million, after demand was stronger than expected. The shares were offered at $7.10 each.

After the close of the market, the company said its underwriters exercised an option to sell an additional 13.725 million shares, up from the previously planned 10.5 million over-allotment,

The credit crisis has pummeled REIT stocks, with investors concerned that the companies may not be able to refinance their sizable debts when they mature.

After falling 41.5 percent last year, the benchmark MSCI U.S. REIT Index .RMZ was down another 29.9 percent before Friday's pop of 9.1 percent.

"The market is seeing that the capital markets aren't closed," Raymond James analyst R.J. Milligan said. "It's a positive in the fact that investors are still willing to inject capital into REITS (real estate investment trusts).

All together, the offering is expected to net Kimco $717.3 million, to repay debt and for general corporate purposes.

Kimco shares rose $1.91 to close at $9.40 on the New York Stock Exchange, where they were among the top 10 percentage gainers. The company has a stake in about 1,950 properties in 45 U.S. states, Puerto Rico, Canada, Mexico and South America.

S&P analyst Robert McMillan raised his rating on Kimco shares to "hold" from "sell," early in the morning, based in part on the cash expected to be raised from the equity offering.

The optimism was contagious as shares of most property REITs rose.

Developers Diversified Realty Corp(DDR.N) closed at $2.71 cents, up 14.4 percent, or 34 cents. Macerich Co (MAC.N) closed up 22.4 percent, or $1.80 at $9.84. Pennsylvania Real Estate Investment Trust (PEI.N) rose 18.4 percent, or 76 cents, to $4.90.

Boston Properties Inc (BXP.N) rose 12.4 percent, or $4.59 at $41.69 Federal Realty Investment Trust (FRT.N) rose $2 or 4.1 percent to close at $50.81. Simon Property Group Inc (SPG.N) rose 11.7 percent, or $4.33, to $41.30.