* Schaeffler places 7.8 mln shares at 122.50 eur/shr
* To use an additional 325 mln eur to pay down debt
* Says gross debt to fall to 9 bln eur from 10.3 bln
* Continental shares fall 3.8 pct (Adds shares, details on debt reduction, background)
FRANKFURT, Sept 17 (Reuters) - German car parts maker Schaeffler Group has sold a 3.9 percent stake in automotive supplier Continental AG for about 950 million euros ($1.3 billion), taking advantage of a more than 20-year high in Continental's share price to pay down debt.
Schaeffler, which makes ball bearings and clutches, said on Tuesday it placed 7.8 million shares with international investors at 122.50 euros apiece, a 3.5 percent discount to Monday's closing price.
The move is one of several measures to cut debt after privately-held Schaeffler's debt-financed takeover bid for Continental in 2008 caused liabilities to soar. In July, it struck a new credit agreement worth 3.9 billion euros.
Schaeffler will use proceeds from the placement and an additional 325 million euros from its free cashflow to cut its gross debt to about 9 billion euros from around 10.3 billion.
The transaction, managed by Goldman Sachs, cuts Schaeffler's stake in Continental to about 46 percent from 49.9 percent.
It agreed not to sell any more Continental shares for 180 days and confirmed it considers the holding a "long-term strategic participation".
Shares in Continental were down 3.8 percent at 122.10 euros by 0743 GMT, the second-biggest decline on Germany's blue-chip DAX index. The stock had climbed to 126.95 euros on Monday, its highest in more than 22 years, according to Thomson Reuters data.
$1 = 0.7489 euros Reporting by Maria Sheahan; Editing by Christoph Steitz and Mark Potter