UPDATE 1-Britain's FSA says closely monitoring UK bank B&B

(Updates further comment, background)

By Sudip Kar-Gupta

AIX-EN-PROVENCE, France, July 6 (Reuters) - The chairman of Britain's Financial Services Authority (FSA) said the regulator was closely monitoring Bradford & Bingley (BB.L: Quote, Profile, Research, Stock Buzz), the UK bank whose shares have slumped on concern about its business plan.

Bradford & Bingley (B&B) on Friday increased its rights issue to 400 million pounds ($793.6 million) after U.S. investor TPG Capital pulled out of buying a stake.

"We have taken a close interest in it," FSA Chairman Callum McCarthy told Reuters on the sidelines of a business conference in this southern French city.

Asked whether the FSA would continue to monitor Bradford & Bingley closely, McCarthy replied: "Of course."

The FSA is keen to avoid problems from the global credit crunch spreading across Britain's financial sector after the near collapse of British bank Northern Rock last year, which ended up being nationalised by the government.

TPG pulled out of buying a stake in B&B after ratings agency Moody's cut B&B's debt ratings, triggering a clause allowing TPG to scrap the agreement.

That prompted the FSA to step in to help ensure that an alternative financing plan was in place.