UPDATE 4-Japan's MUFG to issue $11 bln in new shares-sources

* To issue about 1 trillion yen in common shares-sources

* To use funds to meet tougher capital requirements-sources

* Issue at Friday closing price would trigger 17 pct dilution

* MUFG shares in US fall 7.8 pct on Nikkei report of offering (Updates with details, background)

By Taro Fuse and Emi Emoto

TOKYO, Nov 14 (Reuters) - Mitsubishi UFJ Financial Group (8306.T), Japan's largest bank, will issue about $11 billion in new shares to meet stricter capital requirements and boost lending in Asia, three sources familiar with the matter said.

The common share issue of roughly 1 trillion yen would mark a record for a Japanese financial firm, according to Thomson Reuters data.

Japanese banks have already raised $15 billion this year by issuing common shares, but have been expected to tap resurgent equity markets for more as regulators globally plan new rules requiring them to hold a thicker buffer of capital.

MUFG plans to issue the shares by the end of the year, the sources said, confirming an earlier report in the Nikkei newspaper, which pushed shares of the bank traded in the United States (MTU.N) down nearly 8 percent.

The Group of 20 leading industrial and emerging market countries agreed in September to finalise new capital rules by the end of 2010 and set an end-2012 date for implementing tougher capital rules for banks.

Japanese banks have in the past raised funds through issuing preferred securities and preferred shares, but neither of these count towards core tier-1 capital, a measure of high quality capital against risky assets that is likely to be the standard under new global rules.

MUFG's core tier-1 ratio stood at 5.8 percent in June and a 1 trillion yen share offering would boost that by about 1 percentage point, the Nikkei said.

MUFG is also keen to establish a firmer capital base so that it can boost lending to companies in fast-growing Asian economies, a key pillar of its overseas growth strategy.

"This is a pre-emptive strike ahead of an international move to tighten capital requirements," said one of the sources. "It will also give us a more solid capital base to compete with the big global financial institutions."

The sources spoke on condition of anonymity ahead of an official filing, which they said could come on Nov. 18, when the bank is scheduled to report its first half earnings. A MUFG spokesman declined to comment.

DILUTION

MUFG raised 800 billion yen in December by issuing common and preferred shares to replenish its capital after suffering from falls in the value of its equity portfolio and making a $9 billion investment in U.S. bank Morgan Stanley (MS.N).

Issuing 1 trillion yen worth of stock at Friday's closing price of 508 yen would boost MUFG's outstanding shares by about 1.97 billion, or by 17 percent.

Shares of MUFG have fallen nearly 20 percent over the past 6 months, in part reflecting investor concerns it would embark on another major capital raising, having emerged from the "lock-up period" following its last public offering.

Ismael Pili, bank analyst at Macquarie Securities in Tokyo, said investors have been bracing for an offering from MUFG that would cause share dilution of 15 to 20 percent, and that if it fell in that range it could lift the cloud hanging over the stock.

"That might be the go-ahead signal because I think it's been priced in," Pili said on Friday before media reports of the offering, adding that a share issue by MUFG could trigger other Japanese banks to follow suit.

Mizuho Financial Group (8411.T), Japan's second-largest bank, raised about 550 billion yen by issuing shares in July while No. 3 lender Sumitomo Mitsui Financial Group (8316.T) raised about 900 billion yen in June.

Both are expected to tap the market again once out of the current lock-up period restricting them from issuing shares.

Financial institutions have accounted for the bulk of a fundraising rush by Japanese companies following a recovery in the benchmark Nikkei average .N225, which has rallied some 40 percent since hitting a low for the year in March.

Japanese companies overall have sold about $40 billion worth of shares so far this year, an almost nine-fold increase from $4.5 billion in the same period a year earlier, according to Thomson Reuters data.

Over the past few days, shipping firm Nippon Yusen KK (9101.T) said it would raise up to $1.6 billion, electronics conglomerate NEC Corp (6701.T) announced plans to raise $1.5 billion and Mitsui Chemicals Inc (4183.T) said it would sell about $710 million in new shares. (Editing by Alex Richardson)