UPDATE 1-Sappi shares slump after rights discount

* Sappi seeking to raise some R5.8 billion

* Offers rights at a discount of 65.2 percent

* Shares tumble 7 pct

(Adds share price fall, details of deal)

JOHANNESBURG, Nov 7 (Reuters) - Sappi Ltd (SAPJ.J), the world's top maker of fine paper used in glossy magazines such as Vogue, on Friday launched a rights share offer at a discount of 65.2 percent, sending its shares tumbling more than 7 percent.

Sappi set the rights offer price at 20.27 rand which compares with a closing price for Sappi's shares of 58.25 rand on Thursday, the company said in a statement.

The U.S.-based Sappi has bid 750 million euros ($959.6 million) for Finland's M-real Oyj's (MRLBV.HE) loss-making graphic papers unit, and issued the rights offer to help it raise 5.8 billion rand ($579.9 million) for the deal.

Sappi shares sunk 7.30 percent to 54 rand, underperforming the blue chip index .JTOPI, which lost 0.8 percent.

Sappi's acquisition of M-real's coated graphic paper business is seen by analysts as a big step towards a long-awaited European paper industry consolidation. Analysts say Sappi can turn the loss-making graphics paper business around.

The M-real Oyj unit lost 30 million euros in the first half of 2008, but Sappi is aiming to reach annual synergies of 120 million euros over the next three years.

Sappi on Thursday reported a basic loss per share of 14 U.S. cents compared to a profit of 33 cents in the year-ago period, due partly to one-off items, and forecast lower demand in its major markets, partly due to the global credit crunch. (Reporting by James Macharia; Editing by Jon Loades-Carter)