UPDATE 1-Monte Paschi prices 3-bln-euro rights issue at big discount

* New shares offered at 1.17 euros, a 38.9 pct discount to TERP

* Rights issue kicks off on Monday, to run till June 12 (Rewrites throughout after cash call pricing)

SIENA, Italy/ROME, May 21 (Reuters) - Italy’s Banca Monte dei Paschi di Siena priced its upcoming 3-billion-euro ($3.3-billion) rights issue at a big discount as it seeks to plug a capital shortfall unveiled by a Europe-wide health check of the sector.

In a statement issued after the market closed on Thursday, the Tuscan lender said it would offer new shares in the bank at 1.17 euros each, or a 38.9 percent discount to the theoretical ex-rights price (TERP) calculated on Thursday’s closing price.

The rights issue will start on Monday and run until June 12.

Chief Executive Fabrizio Viola said after a five-hour board meeting that its decision on the terms of the rights issue was unanimous.

Under the terms, shareholders who do not buy into the cash call would see their stake diluted by around 90 percent, according to Reuters calculations.

The shares will be offered at a ratio of 10 new shares for every Monte Paschi share already held.

Italy’s oldest bank will use the cash to plug a capital shortfall unveiled by the European Central Bank in a pan-European sector check-up and reimburse state-backed bonds that had helped keep it afloat during the euro zone crisis.

The lender said that after the cash call it would give Italy’s Treasury around 118 million shares as payment for a coupon on state loans. This represents a stake of around 4 percent should the rights issue be fully subscribed.

Shares in Monte dei Paschi, Italy’s third-largest bank, closed down 3 percent at 9.38 euros on Thursday.

The bank already tapped investors last year, raising 5 billion euros and selling new shares at a 35.5 percent discount to the TERP.

Among the main shareholders in Monte Paschi, only French insurer AXA and new investor Alessandro Falciai have so far said they will buy into the new rights issue. Together they hold a stake of less than 6 percent.

Last year, the dilutive nature of the cash call, which was almost twice the bank’s market value, fuelled gains in the stock and hampered trading due to a technical bottleneck. At current market prices, Monte Paschi is worth 2.4 billion euros.

Monte Paschi and smaller Banca Carige emerged as the weakest Italian lenders in last year’s health check. Carige is also readying a cash call for up to 850 million euros.

Monte dei Paschi said last week it was starting to see early positive signs from a painful restructuring.

$1 = 0.8961 euros Writing and additional reporting by Agnieszka Flak and Valentina Za; Editing by Grant McCool