* In advanced discussions to stay out of APS
* No final green light from regulators
* Shares up 8 percent
* For a related column, double click on (Adds unit sale report)
By Myles Neligan and Douwe Miedema
LONDON, Oct 29 (Reuters) - Lloyds Banking Group Plc inched closer to plugging a capital gap of more than 20 billion pounds ($33 billion), boosting the British bank's shares on prospects a deal could happen before the year end.
In a sign it is getting more confident, Britain's biggest retail bank said it was in "advanced discussions" with regulators to stay out of a government-backed scheme to insure bad debts, sending its stock up 8 percent.
The bank for the first time confirmed widely reported details of its ambitious plans -- including one of the world's largest-ever rights issues and a debt swap -- to help it avoid harsh European Union anti-trust sanctions.
"The comments today provide comfort that the group will not be broken up and that any restructuring initiatives will not be particularly material to group earnings or capital," said Joe Dickerson, an analyst at brokerage Execution.
The bank is keen to announce its plans to raise capital at the same time as any sanctions it faces from the EU, after the UK scooped up a stake of 43 percent in the bank in last year's bailout, sources close to the situation have said.
Sky News reported that the bank was close to agreeing a deal with the EU to to sell its Cheltenham & Gloucester branch network. The deal would also involve Lloyds TSB Scotland and internet bank Intelligent Finance, Sky said.
Lloyds's comments came as Ireland's finance minister sought to downplay worries about a delay to his 54 billion euro bad bank plan, saying it could still proceed on schedule unless parliament gets bogged down in a lengthy debate.
Lloyds shares had lost ground this week as the market feared an order from Europe's anti-trust regulators for Dutch bancassurer ING to break up its business after receiving state aid set a harsh precedent for the British bank.
By 1309 GMT, Lloyds stock was up 7 percent at 85.62 pence, outperforming a 3.5 percent rise in the DJ Stoxx European banking sector index and rebounding from Wednesday's lowest close in more than three months.
FINAL DETAILS
Lloyds hopes to launch its plans next week, if it gets approval, Reuters reported last week, quoting sources close to the situation. That would enable it to raise the money before Christmas, its preferred time schedule.
On Thursday, sources familiar with the matter gave new details of Lloyd's campaign to stay out of the APS.
It has lined up a mandatory convertible bond of 2 billion pounds and a series of actions agreed with the Financial Services Authority, they said, such as cost cuts and a reduction of risk-weighted assets.
It also plans a rights issue of 12 billion pounds and contingent capital -- "top up" hybrid capital that changes into equity if the bank hits trouble -- of 7 billion pounds, bringing the total to well over 21 billion pounds.
Lloyds declined to comment.
The bank has yet to receive the green light from regulators to stay out of the APS plan and absorb any further losses on toxic assets without state aid. It said in March it wanted to insure 260 billion pounds worth of assets under the scheme.
"There can be no certainty at this stage that any alternative to (the government insurance scheme) will proceed. All options remain open," Lloyds said.
A Treasury official likewise said talks with Lloyds were continuing and no decisions had been made.
The Treasury has given Lloyds the go-ahead to explore market sentiment and reassure it that private investors are willing to bear the risk of its massive capital addition, two sources familiar with the matter said on Thursday.
"They have been given the go-ahead (to find out) whether they can get it done and underwriters need to explore whether they can deliver," one of the sources said.
"The government is conscious of the risk and if they believe it's too high they won't give them the go-ahead ... the second gets answered by the first," the source said.
The bank has yet to officially mandate the banks it has lined up for the rights issue: UBS, Bank of America Merrill Lynch, Citigroup, Goldman Sachs, JP Morgan Cazenove and HSBC .
Markets have been bracing for wild swings in Lloyds's share price, with stock lending -- an often-used indicator for short-selling -- rising sharply this month. (Additional reporting by Clara Ferreira-Marques and Daisy Ku; Editing by Erica Billingham and Jon Loades-Carter) ($1=.6081 Pound)