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* Bank would need to publish prospectus to market shares
* Lloyds had prepared for possible retail sale last year
* Dividend return makes stock more attractive
* Shares in Lloyds up 0.6 percent in early trading (Adds Lloyds share price)
By Matt Scuffham
LONDON, April 20 (Reuters) - Lloyds Banking Group said it would support plans by Britain's Conservative Party tosell some of the government's remaining 22 percent stake in thebank to retail investors.
Finance minister George Osborne said on Sunday that heintended to sell billions of pounds of government-owned sharesin Lloyds to small investors if the Conservatives win Britain'snational election next month.
"The sale of the stake is clearly a matter for thegovernment. We will support the government in whatever way isrequired in due course," a Lloyds spokesman said.
The Conservative Party said investors would be able to buybetween 250 pounds and 10,000 pounds of Lloyds shares, withpriority going to orders of up to 1,000 pounds.
The shares would be sold at a 5 percent discount to marketvalue and investors who hold their shares for a year wouldreceive an extra 10 percent, up to a value of 200 pounds.
Lloyds would need to prepare a prospectus to help to marketany sale of shares to retail investors. The bank madepreparations for such a sale last year before the governmentshelved the plans because of a decline in the bank's shareprice.
Since then, Lloyds has announced its first dividend since a20 billion pound ($29.9 billion) government rescue during thefinancial crisis, making the stock easier to market to retailinvestors.
"There are now more options to sell the shares in differentways," James Leigh-Pemberton, chairman of UK FinancialInvestments (UKFI), the body that manages the government'sstake, said in a letter to Osborne in March this year.
The government has so far sold almost half of the 43 percentstake it was left with following the bailout. To date, theshares have been sold to financial institutions such as pensionfunds and insurers.
Shares in Lloyds were up 0.6 percent to 79.2 pence at0815GMT, comfortably above the average 73.6 pence price that thegovernment paid for the shares.
Osborne said in March that Britain would raise at least 9billion pounds from selling shares in Lloyds over the next yearbut did not specify what type of investor the shares would besold to.
Before the financial crisis, Lloyds had a record of beingone of the highest dividend paying stocks in Britain, handingover half its profit to shareholders in 2005 and 2006 andanalysts say it could eventually pay out that much again.
($1 = 0.6690 pounds) (Reporting by Matt Scuffham; editing by Simon Jessop and JaneMerriman)
