UPDATE 1-Gulf banks, investors plan $3 bln Islamic bank

(Adds more details, background)

By John Irish

DUBAI, March 26 (Reuters) - Gulf banks and individual investors are planning to set up a $3 billion Islamic investment bank and an Islamic stock exchange in Bahrain by 2009, the chief executive of Albaraka Banking Group BARKA.BH said.

"It will be the largest bank in the region for the issuance of sukuk and will create a secondary market for sukuk," Adnan Yousif told Reuters on Wednesday. Sukuk are bonds that comply with Islam's ban on interest.

The bank, which is aiming to be a global player, would also take projects from a conceptual stage to financing and eventually flotations, Yousif said.

Albaraka is one of the lenders that is looking to invest in the new bank, which will have a paid-up capital of $3 billion and plans to start operations in 2009.

The bank will have a targeted capital of $11 billion, Yousif said.

Other banks that have shown an interest include Saudi Investment Bank and Bahrain Islamic Bank BISB.BH, Yousif said.

"We are in discussions with the central bank of Bahrain and regulators and hope to finalise the details by the end of the year," he said.