UPDATE 1-RESEARCH ALERT-Merrill raises Lehman to buy

June 4 (Reuters) - Merrill Lynch raised Lehman Brothers Holdings Inc LEH.N to "buy" from "underperform" based on valuation, saying the stock has over-corrected to the downside and has also accounted for any likely capital raise, sending its shares up about 6 percent.

The stock, which tumbled to close at nearly a five-year low Tuesday on concerns that Wall Street’s smallest surviving major brokerage may need to raise more capital, was trading up about $1.79 to $32.40 in midday trade on the New York Stock Exchange.

The concerns of a “Bear-like” event at Lehman were unfounded as the company was not subject to the same funding risk as Bear Stearns, Merrill analyst Guy Moszkowski wrote in a research note.

Lehman has more work to do in remixing the business away from securitization markets, but still has very strong global franchises in investment banking, asset management and equities, Moszkowski said.

The brokerage, however, lowered its second-quarter estimate for Lehman to a loss of 74 cents from a profit of 6 cents a share, on expectation of further asset marks, hedge ineffectiveness and market weakness in May. (Reporting by Supantha Mukherjee in Bangalore; Editing by Bernard Orr)