* Transaction part-funded by issue of 26.15 million shares
* Company raises 135 million euros at price of 5.15/shr
* Shares down 1.5 percent; dilution causes co to lag sector * Analysts positive overall due to core Tier 1 boost
* No details on when co will pay back rest of state aid
(Recasts with offering closed)
By Ben Berkowitz and Reed Stevenson
AMSTERDAM, Sept 24 (Reuters) - Dutch banking and insurance group SNS Reaal Group NV sold 26.15 million new shares on Thursday to help pay back a quarter of the 750 million euros ($1.11 billion) state aid it received a year ago.
SNS shares were down 1.5 percent to 5.26 euros at 1334 GMT on Thursday, while the DJ Stoxx European banking index was 0.1 percent lower. The offering will dilute existing shareholders by about 9 percent.
KBC Securities analyst Dirk Peeters trimmed his earnings forecast as a result of the dilution but the SNS sale was positive overall as it would improve the quality of the company's core Tier 1 capital, he said in a client note.
SNS joined a surge of European companies looking to tap markets for cash amid rising share prices and a rush to beat competitors.
British firms in particular are hustling to market ahead of up to 14 billion pounds ($23 billion) in offerings from Lloyds and Royal Bank of Scotland.
Investors have anticipated some sort of offering from SNS since Dutch insurer Aegon sold 1 billion euros of stock on Aug. 13 to repay a third of its state aid.
SNS shares sank in late August when it did not announce an offering, saying only it was considering its options. Analysts said the shares sold off on investor disappointment over a perceived lack of clarity.
The share issue was done in a matter of hours via an accelerated book-building. The new shares priced at 5.15 euros each, a 3.6 percent discount to Wednesday's close.
The share offering leaves ING Group NV as the only independent Dutch institution to receive state aid last October and to not have announced a plan to repay part of it.
REPAY STATE, FOUNDATION
SNS will buy back 185 million euros of core Tier 1 securities issued by the Dutch state and 65 million issued by Stichting Beheer SNS REAAL, the foundation that is its largest shareholder.
SNS said it would fund the remainder of the repayment with its existing capital.
Under the terms of the agreement with the Dutch state, SNS can repay up to a third of the aid by Dec. 8 without incurring financial penalties or paying a coupon.
"Our strengthened capital position and the equity issue announced today bring us in a better position to be able to repurchase 250 million euros of core capital by Dec. 10," Chief Executive Ronald Latenstein said.
The early repayment will save the bank up to 125 million euros, Latenstein said. He would not say how soon SNS would be able to repay the rest of its state aid.
SNS, which said capital ratios at its banking operations remained relatively stable, received a 750 million euro loan last October as the government sought to stabilise the financial sector. It also received 500 million euros in core Tier 1 securities issued by its controlling foundation.
The foundation, will participate in the share issue by buying 1.9 million shares, which will take its stake in the Utrecht-based financial group just above 50 percent.
RUSH TO REPAY
ING, for its part, has said it wants to repay the state as quickly as its can, but has not committed to a timetable. It is contending with two separate EU investigations over its state aid and an asset guarantee facility.
Investors are closely watching what happens in Britain with RBS and Lloyds, both of which are considering substantial cash calls to limit the government's ownership stake. They are expected to try and move quickly before the market is flooded.
There is also a renewed focus on the IPO market in the United States of late. Julius Baer's Artio unit raised a larger-than-expected $650 million amid the busiest week on that market in nearly two years. (Editing by David Holmes, Dan Lalor and Simon Jessop) ($1 = 0.6790 euro = 0.6108 pound)