UPDATE 1-S.Africa's Spar to sell stake to black staff

* Spar staff, franchise employees to get shares

* Part of S.Africa's affirmative action drive

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JOHANNESBURG, July 16 (Reuters) - South Africa's third-biggest supermarket group Spar Group Limited (SPPJ.J) is selling 10 percent of the company to staff and franchise employees to meet affirmative action targets.

The company said it would issue 18.9 million convertible, redeemable preference shares, which would represent 10 percent of the total share capital, to the participants.

Spar said all staff and employees of its franchisers would be eligible for the shares, regardless of race, but noted 75-85 percent of employees were black.

Spar shares gained 1 percent to 59.25 rand by 1206 GMT, outpacing the JSE Mid-cap index .JMIDC. Spar has a market value of about 18 billion rand ($2.21 billion).

South African companies have to meet targets on black ownership, employment and procurement as part of a government drive to give the black majority a greater stake in the mainstream economy.

While many major financial, mining, industrial and telecom groups have already completed black economic empowerment deals, few retailers have implemented schemes to bring on board black investors.

Spar competitor Pick 'n Pay (PIKJ.J) has opted to transfer its Score low-budget chain into black-owned franchises. (Reporting by Rebecca Harrison; Editing by)