UPDATE 2-KB Fin to raise $782 mln via share sale; doubts on M&A

* Smaller than expected issue size seen throwing M&A in doubt

* New shares to be offered at 25 pct discount

* Shares end 2.7 pct higher, ahead of announcement (Recasts with analyst comment, background; adds byline)

By Kim Yeon-hee

SEOUL, July 10 (Reuters) - South Korea's KB Financial Group (105560.KS) said on Friday it would raise a lower-than-announced 1 trillion won ($782 million) in a new share sale next month, throwing its banking expansion plan into doubt.

The parent company of South Korea's biggest bank Kookmin had said in June it was planning to raise $2 billion through a share sale, in a move seen as preparation for a bid on assets such as Korea Exchange Bank (KEB) (004940.KS) and non-banking financial companies.

Analysts said the lower fund-raising amount disclosed by KB on Friday would be inadequate to support a major acquisition.

"It's half of our expectations. The size is neither big nor small," said Lee Hyuk-jae, an analyst at IBK Securities.

"With 1 trillion won, it looks hard to buy a bank (in South Korea). We can't help but think the fund-raising is aimed at buying a non-banking company, which may include a brokerage, insurance or asset management firm."

The smaller fund-raising would also appear to dash the hopes of U.S. private equity firm Lone Star [LS.UL] that KB Financial will buy its 51 percent stake in KEB.

Previous attempts to sell KEB to Kookmin and HSBC (HSBA.L) in 2006 and 2007, respectively, fell through due to legal disputes.

KB's (KB.N) board on Friday approved a plan to issue 30 million common shares at about 32,800 won per share, which would represent a 25 percent discount on a base price to be set later, it said in a statement.

The offer price is equivalent to a 30 percent discount on Friday's closing price, with the new shares set to be listed on Sept. 4.

KB shares ended up 2.7 percent at 46,950 won on Friday, ahead of the share sale announcement.

The volume of the planned offering represents 8.4 percent of its issued capital.

Existing shareholders will be granted about 0.0776839 of a share for every KB share, but Kookmin Bank will not be entitled to receive new shares, KB said.