* Sale priced at 280 pence, no discount to market price
* Demand from U.S. investors, Europe, UK
* Lloyds retains 50 percent stake (Adds analyst reaction)
By Matt Scuffham and Freya Berry
LONDON, Sept 26 (Reuters) - Lloyds Banking Group has sold a further 11.5 percent stake in TSB in a 161million pound ($262.5 million) share placing to investors thatrequired no discount to the market price following strongdemand.
Lloyds said it sold 57.5 million shares at 280 pence,leaving it with a 50 percent stake in the smaller bank. It is afurther step towards meeting a deadline to sell all of TSB bythe end of 2015 - set by European regulators as a condition ofLloyds' government rescue during the financial crisis.
Sources familiar with the matter said demand for the sharesoutstripped the number available several times over, enablingLloyds to sell the shares to mainly long-term investors.
The sale attracted interest from investors in the UnitedStates as well as Europe and buyers had been found to cover thesale within an hour of it being launched after the market closedon Thursday.
Investors were attracted by an exposure to Britain'seconomic recovery via a bank which is untainted by issues ofpast misconduct, industry sources said. They see TSB as a viablechallenger to Britain's "Big Four" banks - Lloyds, Royal Bank ofScotland, Barclays and HSBC.
TSB is one of a number of British banks that have eitherrecently listed on the stock exchange or are preparing to do so.The success of the latest sale could encourage other banksconsidering listings.
Aldermore said on Monday that it planned to list in Londonnext month, in a debut that could value it at up to 900 millionpounds. Virgin Money, backed by entrepreneur Richard Branson, isexpected to list later this year while Santander UK is alsoconsidering its options.
"WIN-WIN"
Reuters reported on Tuesday that Lloyds was preparing tolaunch a second TSB stake sale.
It sold a 38.5 percent stake in TSB in June at 260 pence pershare through an initial public offering, which valued Britain'sseventh-largest bank at 1.3 billion pounds.
Lloyds agreed not to sell any more shares for 90 daysfollowing the first sale in a lock-up which expired on Tuesdayand had a small window in which it could sell more shares beforea closed period ahead of the bank's third-quarter results.
The number of shares sold was less than some industrysources had expected but leaves Lloyds well placed to meet theEuropean regulator deadline. Industry sources say it is possiblethe remaining shares could be sold in two stages.
Because Lloyds, which was advised by UBS on thedisposal, retains 50 percent of TSB, the smaller bank willcontinue to be consolidated within its accounts.
"We regard the small overnight placing as a win-win for bothLloyds and TSB," said Investec analyst Ian Gordon. "We continueto see more material upside for Lloyds' share price, while TSB,in our view, represents a very solid defensive play underpinnedby a strong growth story in the longer term."
European regulators ordered Lloyds to sell the 631 brancheswhich now form TSB by the end of 2015 as a condition for gettinga 20.5 billion pound ($33.4 billion) government rescue duringthe financial crisis, under state aid rules.
Shares in TSB were down 0.2 percent at 0840 GMT while LloydsBanking Group was up 0.5 percent.
(1 US dollar = 0.6135 British pound) (Editing by Jason Neely and Pravin Char)