UPDATE 2-UAE's Ras al-Khaimah plans $2 bln Islamic bond sale

(Adds rating, quote, details of tranches)

MANAMA, May 4 (Reuters) - Ras al-Khaimah (RAK), part of the United Arab Emirates federation, plans to sell up to $2 billion of Islamic bonds to fund infrastructure projects, a person with direct knowledge of the issue said on Sunday.

The sale is one of a growing number in the Gulf in recent weeks, marking a spike in issuance following a lull when firms shelved Islamic bond plans after defaults on U.S. home loans raised the cost of borrowing, triggering a credit crunch.

The first group of RAK bonds will be at least of benchmark size, typically $500 million, said the person, who did not want to be identified. Meetings to market the five-year bonds, or sukuk, start this week.

"The money raised will be used to fund infrastructure development and also to set pricing levels for the RAK private sector," the person said.

Bankers say sovereign sukuk make corporate issuance easier by providing a benchmark against which pricing can be compared.

Ratings companies Fitch and Standard & Poor's each have given the government of Ras al-Khaimah an "A" rating.

Standard Chartered Plc (STAN.L) has been mandated as the sole lead-manager and bookrunner for the programme, the London-listed lender said in a statement on Sunday.

If sold in dirhams, the bonds would be the first rated dirham sovereign sukuk. Other tranches could be sold in dollars, said the person.

Investor appetite for Gulf currency denominated securities is high on expectations that Gulf Arab states may revalue to stave off rising inflation. All the region's currencies except Kuwait's are currently pegged to the falling U.S. dollar.

In recent weeks Dubai developer Nakheel, air conditioning firm National Central Cooling Co TABR.DU and mammoth chemicals firm Saudi Basic Industries Corp 2010.SE have sold sukuk or announced sales in local currencies.

Islam bans interest, and sukuk returns are derived from underlying physical assets which typically pay a rent or profit to bondholders.