UPDATE 2-Daiwa Sec shares dive 12 pct after share sale news

*Nikko Citigroup analyst: size of capital boost a surprise

*Nomura falls 4.2 percent (Adds buyside comments in paragraph 2, byline)

By Junko Fujita

TOKYO, June 29 (Reuters) - Shares of Daiwa Securities Group (8601.T) tumbled 12 percent on Monday after Japan's second-largest brokerage announced it would raise $2.5 billion through its first equity offering in 20 years to expand its operations.

"Investors are particularly sensitive about equity offerings by financial institutions," said Hitoshi Yamamoto, chief executive officer at Fortis Asset Management Japan. "Their business outlook still remains unclear and a large equity offering is a negative news."

Daiwa plans to issue up to 345 million new shares and sell roughly 58 million of its own shares in Japan and overseas, with the new issue increasing its outstanding stock by about a quarter. [ID:nT322520]

Daiwa follows Sumitomo Mitsui Financial Group (8316.T), Japan's third largest bank, which in May raised $9.7 billion by selling shares.

Daiwa's rival Nomura Holdings Inc (8604.T) in March sold $2.9 billion worth of shares.

"We believe the offering will be negative for the share price in the near term as we had not thought this much additional capital would be needed," Nikko Citigroup analyst Makoto Kasai said about Daiwa's equity offering in a note to clients.

Daiwa's shares fell to 587 yen, its lowest level in about a month. Shares of Nomura fell 4.2 percent.

Daiwa said on Friday it would use the funds to expand overseas and bolster its domestic retail operations, a move that comes as the domestic economy shows signs of recovering from its worst recession since World War Two.

Last month Daiwa Securities SMBC Co, Daiwa's investment banking arm, agreed to buy the corporate finance unit of Britain's Close Brothers Group (CBRO.L) to accelerate its overseas expansion. [ID:nT137393]

Earlier this month, Daiwa also said it would spend about $140 million to take a stake in a real estate investment trust (REIT) and buy the trust's asset manager from DaVinci Holdings (4314.OJ) to boost its property business. [ID:nT58298] ($1=95.58 Yen) (Additional reporting by Elaine Lies; Editing by Edwina Gibbs and Muralikumar Anantharaman)