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* Tycoon's Frontline to raise Knightsbridge stake to 70 pct
* Will transfer 25 newbuild contracts to Knightsbridge
* Creates major bulk player with 39 vessels
* Dry bulk dayrates seen rising in 2014 (Adds detail)
OSLO, April 24 (Reuters) - Norwegian shipping tycoon John Fredriksen agreed on Thursday to take over rival Knightsbridge Tankers, creating a major operator of dry bulk carriers with 39 vessels as the sector gears up for an expected recovery.
Fredriksen's unlisted Frontline 2012 unit, which already owns 38 percent of Knightsbridge, agreed to hand over newbuild contracts on 25 vessels in exchange for new shares that will raise its stake in the firm to 70 percent, Frontline said in a statement.
Fredriksen controls a further 3 percent of Knightsbridge.
Frontline will receive 62 million Knightsbridge shares in two tranches, worth $777.5 million at Wednesday's closing price.
The dry bulk market has been depressed for years due to an oversupply of vessels and weaker-than-expected demand, and freight rates tumbled in the first quarter, squeezing cash-strapped vessel owners.
But its fundamental outlook is strong and analysts expect rates to rebound over the next few years, particularly on steady iron ore demand and limited new vessel deliveries.
Dayrates for capesize vessels, among the biggest bulk carriers, averaged $14,000 last year, close to twice their rate in 2012, and analysts at Fearnley Securities see them averaging around $18,000 this year and $27,500 next.
That would be a far cry from levels above $100,000 a day in 2007 but above Knightsbridge's targeted $15,000 break-even level.
The deal is also part of Fredriksen's plans to break up Frontline 2012, moving various vessels into different entities to create pure sector plays.
The firm recently sold gas carriers for a stake in Avance Gas and listed the company following an initial public offering this month.
The new vessels will be delivered by the end of 2016 with five arriving in 2014, 14 in 2015 and six in 2016.
Frontline 2012 said it expected to distribute its Knightsbridge shares to its own shareholders over time. (Reporting by Balazs Koranyi and Ole Petter Skonnord; Editing by John Stonestreet)