UPDATE 1-Lone Star could make block sale of KEB shares -KEB

(Adds more quotes, background, KEB share price)

SEOUL, July 3 (Reuters) - U.S. private equity house Lone Star [LS.UL] could offer shares in Korea Exchange Bank (KEB) (004940.KS) in a block sale if the pending $6.3 billion deal to sell control of KEB to HSBC (HSBA.L) falters, KEB's chief executive said on Thursday.

Rumours have arisen that Lone Star might sell some of its 51 percent stake in the sixth-largest bank in South Korea in block trade, as regulators have been delaying approval of the deal with HSBC due to legal disputes surrounding the fund's South Korean activities.

The deadline for HSBC's (0005.HK) offer to buy the Dallas-based fund's shares in KEB had been extended by three months to the end of this month, but few analysts expect regulatory approval to be given by that time.

"It's certainly an alternative for Lone Star. They are under pressure from shareholders," Richard Wacker, KEB CEO, told reporters on the sidelines of a bank ceremony, when asked about a possible block sale of KEB shares by the investment firm.

"If there is no progress, they have their own choice."

In 2007, Lone Star unloaded a 13.6 percent stake in KEB through a block deal for $1 billion to pay down debt and return profits to shareholders prior to the deal with HSBC.

Shares in KEB were down 2.11 percent to 13,950 won by 0210 GMT, compared with the wider market's 1.83 percent fall.

But Wacker said that KEB did not want a block sale of its shares to happen, adding that the South Korean bank was fully committed to getting the HSBC purchase closed.

"We need to keep persuading people, including the FSC (Financial Services Commission), that it's time to make a decision," he said, adding that both Lone Star and HSBC needed an indication to move forward with the KEB deal.

"I know (Lone Star and HSBC) remain committed strongly to getting this deal closed."

Analysts and fund managers have played down the prospects of Lone Star launching another block sale of KEB because the fund still has a chance to win premiums by selling KEB management rights to a strategic buyer.

Removing a legal hurdle to the HSBC purchase, a South Korean high court cleared Lone Star of a stock price manipulation charge last month.

After the verdict, the regulatory FSC reiterated that it would hold off on any decision on the sale until all legal uncertainties are settled. A legal dispute over Lone Star's 2003 purchase of KEB is awaiting a court ruling as early as the end of this year, though the case does not directly involve Lone Star.

(Reporting by Kim Yeon-hee; Editing by Keiron Henderson and Jonathan Hopfner)