UPDATE 1-Giant Interactive marks China's top US IPO of 2007

(Recasts, adds background, use of proceeds, initial market capitalization)

NEW YORK, Oct 31 (Reuters) - Giant Interactive Group Inc on Wednesday raised $886.6 million with an initial public offering that priced well above expectations, making it the largest such capital raising in China's fast-growing online game sector.

The IPO by China's No. 3 online game operator, the largest by a Chinese company on U.S. markets this year, marks the latest deal in a record-breaking capital-raising push by firms in the world's second-largest Internet market.

The Shanghai-based company sold 57.2 million American depositary shares at $15.50 each, compared with a forecast range of $12 to $14. Based on its offering price, Giant has an initial market capitalization of about $3.9 billion.

It said it launched the offering to create a public market to benefit shareholders and provide equity incentives for employees. It plans to use proceeds for general corporate purposes, and possible acquisitions, according to its filing with the U.S. Securities and Exchange Commission.

The stock is expected to begin trading on the New York Stock Exchange on Thursday under the symbol "GA" (GA.N: Quote, Profile, Research, Stock Buzz).

Underwriters, led by Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) and UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) (UBS.N: Quote, Profile, Research, Stock Buzz), have the option to purchase an additional 8.6 million ADSs to cover overallotments.

The company is a relative latecomer to China's fast-growing online game market, where it and the other top three players, all Nasdaq-listed, now control a combined share of about two-thirds, according to Analysys International.

Shanda Interactive (SNDA.O: Quote, Profile, Research, Stock Buzz) was the market leader with 21 percent in the second quarter of this year, followed by NetEase (NTES.O: Quote, Profile, Research, Stock Buzz) at 19.2 percent, Giant at 15 percent and The9 (NCTY.O: Quote, Profile, Research, Stock Buzz) at 10.6 percent, according to Analysys.