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* Share sale at 5.6 pct discount to market price
* Price 28 pct higher than Temasek unit paid in 2006
* Shin shares down nearly 4 pct after stake sale (Adds details, company comments)
By Khettiya Jittapong and S. Anuradha
BANGKOK/SINGAPORE, Jan 10 (Reuters) - A unit of Singapore state investor Temasek Holdings Pte Ltd has raised $687 million through the sale of a 10.3 percent stake in Thai telecommunications group Shin Corp Pcl, benefiting from a recent rally in the stock.
Cedar Holdings, 49 percent owned by Temasek, sold 330 million Shin shares at 63.25 baht each, raising 20.87 billion baht ($687 million), IFR reported. The term sheet, seen by Reuters, had an indicative price of 62.75 to 63.75 baht per share.
This was the third time in more than two years Cedar has diluted its holding in Shin, after it sold nearly 8 percent of Shin in August 2011 and another 6.2 percent in January 2012.
The transactions were executed via 27 big-lot deals through the Thai stock exchange and the price was at a discount of 5.6 percent to Wednesday's close at 67 baht, which dragged Shin shares down almost 4 percent on Thursday.
The price was 28 percent higher than the 49.25 baht a share that Temasek-linked units paid in 2006 to purchase a controlling stake in Shin Corp from the family of former Prime Minister Thaksin Shinawatra.
Shin shares have risen 60 percent in the past year, outperforming a 36 percent rise in the Thai stock market , Asia Pacific's best performer in 2012.
The outperformance reflected market optimism over a 3G mobile spectrum auction in Thailand and strong growth in the telecommunications sector, which is expected to benefit from strong domestic consumption.
"The latest sale raises the question whether there will be another off-loading in the future, which puts short-term pressure on Shin shares. But we have positive view on Shin Corp outlook," DBS Securities said in a note.
Some 13 of 15 analysts rate Shin "buy" or "strong buy", while one put rated it a "hold" and another one rated it a "sell", according to Thomson Reuters Starmine.
Founded by Thaksin Shinawatra, Shin has interests in several telecommunications businesses, including Advanced Info Service Pcl, Thailand's largest mobile phone operator, and satellite firm Thaicom Pcl.
Temasek-linked companies Cedar and Aspen Holdings Ltd will still own nearly 55 percent of Shin Corp after the stake sale.
Aspen Holdings, wholly owned by Temasek, has no plan to sell any of its 41.62 percent stake at this point, Shin Corp told the stock exchange.
Cedar's stake in Shin Corp dropped to 13.3 percent from 23.6 percent as a result of the sale, while Shin's free float has risen to 45 percent, according to the term sheet.
The book was covered two times with more interest from international investors. Around 90 institutional accounts participated in the transaction with significant allocation for one long-only international investor, IFR said.
Credit Suisse and Morgan Stanley were joint bookrunners, IFR said. Thai broker Bualuang Securities and Siam Commercial Bank were the co-bookrunners.
Temasek has signalled in the past that it would reduce its stake in the telecoms firm.
$1 = 30.3850 Thai baht Reporting by Khettiya Jittapong and S. Anuradha; Editing by Alan Raybould and Matt Driskill