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* Placing of six pct of UK govt stake priced at 75p/share
* Placing 2.8 times covered - sources
* Sale raises 3.2 billion pounds for UK government
* UK FinMin: share sale an important step
* UK pumped 20.5 bln stg into Lloyds in 2008 crisis
By Matt Scuffham and Steve Slater
LONDON, Sept 17 (Reuters) - Britain could have sold the 6percent stake in banking group Lloyds it placed withinvestment institutions nearly three times over, sources said,raising the prospect it could sell all its shares before the2015 General Election.
The 3.2 billion pounds ($5 billion) divestment, five yearsafter Lloyds and rival Royal Bank of Scotland (RBS) werebailed out at the height of the credit crunch with a combined 66billion pounds of taxpayers' cash, represents a milestone in theeconomy's recovery from the financial crisis.
The sale of the Lloyds stake has long been a priority forthe Conservative-led coalition government, which sees the returnof Lloyds to private ownership as an important step in its planto recover taxpayers' money.
"This is another step in the long journey in putting rightwhat went so badly wrong in the British economy," FinanceMinister George Osborne said.
"It's another step in repairing the banks, it's another stepin getting the money back for the taxpayer, and it's anotherstep in reducing our national debt," Osborne added.
The shares were sold to unnamed investment institutions at75 pence per share, a 3 percent discount to Lloyds' closingprice on Monday. Sources with direct knowledge of thetransaction said it was 2.8 times covered by demand.
Given the level of investor appetite, said analyst IanGordon at Investec, the rest of the Lloyds shares could be soldby the next election. By comparison, the United States sold$31.8 billion worth of shares in Citigroup over anine-month period in 2010.
"We regard the Government's timing as impeccable and itappears credible to suggest that it could yet be out in full bythe election," Gordon said.
Paras Anand, head of European equities at Fidelity WorldwideInvestment, said: "Today's placing is a clear sign of confidencethat the bank is well on the road to recovery."
The sale of the 6 percent stake in Lloyds, carried out afterMonday's UK stock market close, comes two weeks before theConservative annual conference and could allow Osborne to drivehome the message that he is cleaning up the financial mess whichthey are keen to blame on the then-ruling Labour Party.
While polls forecast Labour will win a majority at the 2015election, surveys show the Conservatives are more trusted by thepublic on handling the economy.
Mark Garnier, a Conservative lawmaker and ex investmentbanker who sits on the Treasury Select Committee - whichexamines the work of the finance ministry - also agreed acomplete sale before the next election is possible.
LOT OF CONFIDENCE
"By selling these shares off now they've establishedbenchmarks like where the price is and what the demand is like,and whether more can follow through. That gives a lot ofconfidence that the market is expecting and prepared to takedown the Lloyds selloff," Garnier said.
The Treasury has agreed not to sell any more shares in thebank for 90 days and bankers and investors don't expect a secondsale until after Lloyds publishes its 2012 results next March.
Osborne said the government will consider offering shares toretail investors when it offloads more of its remaining 32.7percent stake. "This is the first in a multi-staged saleprogramme. I will consider all options for later sales of ourshareholding in Lloyds, including a retail offering to thegeneral public," Osborne said in a letter to Andrew Tyrie,chairman of the Treasury Select Committee.
A sale of shares in RBS is seen as much further away, withthe shares still trading at 28 percent below the government'saverage buy-in price - meaning taxpayers are sitting on a lossof 13 billion pounds.
The outlook for RBS is further complicated by thegovernment's decision to hire investment bank Rothschild to examine whether the bank should be broken up. Adecision is expected in the autumn.
The Lloyds sale is the biggest equity capital markets deal in Europe this year and the proceeds are also greater than theexpected 2 billion to 3 billion pounds which Britain is expectedto raise from the sale of Royal Mail
Sources with direct knowledge of the transaction said thebiggest block of investors were British, but there was also gooddemand from the United States, Asia and Europe, with investorsseeing the stock as a play on the UK economic recovery.
The sale will reduce the government's debt by 586 millionpounds, as the shares were on its books at 61.2p, taking intoaccount fees already repaid by Lloyds. The sale price was aheadof the government's average buy-in price of 73.6 pence, meaningthe government will make a profit of 61 million pounds.
Bank of America Merrill Lynch, JP Morgan Cazenove and UBS Investment Bank were joint bookrunners on the deal. Lazard acted as capital advisor.The Treasury did not pay any fees to advisors on the deal.
Shares in Lloyds were down 2 percent at 75.7p by 1100 GMT.
($1 = 0.6275 British pounds)($1 = 0.6275 British pounds) (Additional reporting by Sinead Cruise, Will James and KylieMacLellan; Editing by David Holmes)
