UPDATE 1-LUKOIL sets price guidance for bond issue - source

* 5-year bond priced at 6.5 pct, 10-year bond at 7.375 pct

* LUKOIL may sweeten dividend pay out

(Adds information on dividends, details, quotes)

MOSCOW, Oct 28 (Reuters) - LUKOIL (LKOH.MM), Russia's second biggest oil producer, plans to sell a 5-year Eurobond at 6.5 percent, and 10-year debt at 7.375 percent, a source close to the deal told Reuters on Wednesday.

LUKOIL, 20 percent-owned by ConocoPhillips (COP.N), plans to sell Eurobonds worth between $1.0-$1.5 billion.

The planned sale marks the first benchmark Eurobond issue by a privately-held Russian firm since the credit markets dried up at the onset of the financial crisis.

Another banking source said that during a conference call a LUKOIL representative hinted the company could increase dividend payments going forward.

The company's board has set limits for dividends at 15 to 40 percent of earnings.

"For the past few years LUKOIL has seen itself as a growth company with too many investment opportunities and so they paid the minimum of that range. They paid exactly 15 percent," the banker quoted a LUKOIL representative as saying.

"If, however, they see themselves as becoming more mature with a harvesting type of business model, then the pay-out ratio will increase from 15 percent towards 30 to 40 percent." (Reporting by Dmitry Sergeyev, Vladimir Soldatkin and Katya Golubkova; Editing by Alfred Kueppers, Greg Mahlich)