UPDATE 1-E*Trade raises $550 mln in equity sale

* Company raises $586 mln of net proceeds in quarter

* Shares rise 2.5 percent to $1.24 on the Nasdaq

NEW YORK, June 24 (Reuters) - E*Trade Financial Corp (ETFC.O), a discount brokerage under pressure from U.S. regulators to shore up its capital, said on Wednesday it raised $550 million in gross proceeds with a common stock offering, above the company's expectations.

The brokerage, in which hedge fund Citadel is the biggest debt and equity holder, said last week it would offer $400 million in common stock

Following the transaction, E*Trade, which has a sound trading business but suffered significant credit losses in mortgage lending, said it raised a total of $586 million of net proceeds in the second quarter through equity sales.

The company is planning to raise at least $1.2 billion in fresh capital including a debt swap of more than $1 billion of newly issued zero-coupon convertible debt for notes due in 2011 and 2017.

Chicago-based Citadel, which installed CEO Kenneth Griffin on E*Trade's board, had agreed to buy up to $100 million in E*Trade stock, and will swap at least $800 million of E*Trade notes it holds for the new convertible debt.

E*Trade shares rose 2.5 percent to $1.24 in late morning trade on Nasdaq. (Reporting by Juan Lagorio, editing by Tim Dobbyn)