UPDATE 2-KB Financial eyes $1bln-$3bln in new capital- source

* KB Fin eyes rights issue by around Q3 - banking source

* Credit Suisse, JPMorgan, BofA-Merrill among advisors picked

* KB shares wipe out early gains to edge down (Adds analyst comment, another industry source, background)

By Kim Yeon-hee

SEOUL, June 5 (Reuters) - KB Financial Group (105560.KS), which runs South Korea's largest bank Kookmin, is seeking to raise $1 billion to $3 billion in new capital by around the third quarter, a banking source told Reuters on Friday.

The banking group has asked six investment banks, including Credit Suisse (CSGN.VX), JPMorgan (JPM.N) and Bank of America-Merrill Lynch (BAC.N) to advise on the plan, the source and two other industry sources said.

"It is a capital raising and is most likely a rights issue," the source with direct knowledge of the plans said, declining to be identified because of company policy. He added the planned issue would take place "this summer or in the third quarter".

KB (KB.N) had said it would pursue acquisitions after the third quarter once markets stabilised, looking to boost its corporate and investment banking presence to balance its business portfolio, like rival Shinhan Financial Group (055550.KS) did.

KB, the country's No. 3 financial services company said on Wednesday it might sell new shares to raise capital, but added nothing had been decided, heightening speculation that it would bid for smaller rival Korea Exchange Bank (KEB) (004940.KS). [ID:nSEO249141]

KEB is 51 percent owned by U.S. private equity firm Lone Star [LS.UL], a stake worth 3.2 trillion won ($2.6 billion) at current market prices. KB's initial deal in 2006 to buy KEB from Lone Star stumbled over a legal dispute.

KB Financial, Credit Suisse, JPMorgan and Bank of America-Merrill Lynch all declined to comment.

Shares in KB Financial wiped out early gains to inch down 0.12 percent to 40,250 won by 0239 GMT, after the Reuters report. The wider market rose 0.21 percent.

REASONABLE STRATEGY?

Recent gains in the battered stock prices of South Korean banks are emboldening some of them to consider raising fresh capital for business growth or to cushion their balance sheets from the global economic slowdown and a surge in bad loans.

Without a new share offering, KB Financial may be able to raise 2 trillion won through the sale of a 13 percent stake owned by Kookmin in it, based on current market prices.

To fund a potential acquisition of KEB and other non-banking companies at home, the group might need an additional 3 trillion won, analysts say.

"If we think about post-financial crisis, they would be very reasonable investments as a top-tier bank in South Korea," said Park Jung-hyun, a Hanwha Securities analyst, referring to KB's possible purchases.

The two unnamed industry sources said Citigroup (C.N), Samsung Securities (016360.KS) and Korea Investment & Securities were also picked to work on KB's new share sale. Officials from the three firms were not immediately available for comment. ($1=1246.2 Won) (Additional reporting by Shin Jieun; Editing by Jonathan Hopfner and Muralikumar Anantharaman)