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* UK may sell if it can offload at above buy-inprice-sources
* Sale could be made this month - sources
* Sale would be via 'accelerated bookbuild' - sources
* Sale seen as milestone in recovery from 2008 crisis
* Shares in Lloyds up 2.2 percent (Adds comment from Treasury, investor, sources)
By Matt Scuffham
LONDON, Sept 10 (Reuters) - Shares in Lloyds Banking Group hit a 3-year high on Tuesday as expectations mountedthat the British government could start selling off its 39percent shareholding this month.
Three sources with knowledge of the government's thinkingsaid it was considering selling around a quarter of its 39percent stake - worth about 5 billion pounds - if it could do soabove 73.6 pence a share, the average price at which it boughtthem.
One of the sources said a sale could come in the next 7 to10 days.
Britain's Conservative-led coalition government considerssuch a sale as a milestone in Britain's recovery from the 2008financial crisis, during which taxpayers pumped a combined 66billion pounds into Lloyds and Royal Bank of Scotland.
Shares in Lloyds, which have more than doubled in value overthe last 12 months, were trading at 78.6 pence at 1310 GMT, up2.2 percent.
"From the level of noise, it's imminent," said one senior UKequities fund manager specialising in financial stocks. "Indexdemand should take around a quarter of the offer and I'd expectit will be well supported by institutional investors."
The shares will be sold via a placing to pension funds andinsurers after the Treasury turned down private equity andsovereign wealth funds, according to the sources close togovernment.
The sources said the sale would be made at a "narrowdiscount" to the current share price and take the form of an"accelerated book build" over a period of 24 hours.
The government would ideally like to follow the example ofDeutsche Bank, which raised 3 billion euros overnightin April by placing new shares at the previous day's close.
UK Financial Investments, which manages the government'sstakes in Lloyds and Royal Bank of Scotland, isreviewing the situation daily, sources have said, and will makea recommendation to Britain's finance ministry when to commencea sale. The final decision will be made by UK Finance MinisterGeorge Osborne.
"The government has consistently said we have no settimetable or target share price for beginning the return ofLloyds to the private sector, and ensuring value for money forthe taxpayer will continue to be the overriding considerationfor any sale," the Treasury said on Tuesday.
Osborne may look to make the sale before the Conservative'sannual party conference begins on Sept 29, one of the sourcessaid. Any sale needs to be made by mid-to-late October, anothersource said, before Lloyds enters a closed period ahead of itsthird-quarter results on Oct. 29.
Another factor being considered is how the shares willperform after the government has sold its stake. One sourceclose to the government said it was wary about pressing thebutton on a sale when the shares could have further to rise.
"The stock has traded well but a lot of people still seesome upside too," the source said.
Morgan Stanley and Bernstein last week upgraded their targetprices on the stock to 100 pence per share.
The government had been expected to sell the shares in fourtranches, leaving a year's gap between each sale, but theprocess could be accelerated should interest be keen. The U.S.offloaded $32 billion worth of shares in Citigroup in2010.
J.P. Morgan is advising UKFI and the Treasury on the sale.
Lloyds, JP Morgan and UKFI declined to comment.
(Additional reporting by Sinead Cruise and Anjuli Davies;Editing by Sophie Walker)
