* Prudential raises H1 div 5 pct, says won't sell UK unit
* Aegon in 1 bln euro equity fundraising to repay govt loan
* Pru shares up 11 percent, Aegon down 6 percent
(Adds Aegon CEO comments, analysts view, updates shares)
By Myles Neligan and Ben Berkowitz
LONDON/AMSTERDAM Aug 13 (Reuters) - Insurers Prudential and Aegon reported lower underlying earnings, hit by weaker investment income, but both signalled in different ways they were becoming more confident about their prospects.
Britain's Prudential, Europe's fifth-biggest insurer by market value, said on Thursday its capital position was "very strong," and announced a 5 percent rise in its dividend to 6.29 pence per share.
In a further sign of optimism, Dutch-based Aegon, the continent's sixth-biggest insurer, asked investors to put up 1 billion euros ($1.4 billion) in return for new shares, even though the group has already set aside 3.5 billion euros in surplus capital.
The cash will be used to partly repay 3 billion euros in government aid Aegon received at the height of the financial crisis last year, the company said.
Aegon's share sale was fully covered by lunchtime on Thursday, sources told Reuters.
Prudential's shares were up 11 percent at 531 pence by 1435 GMT after its dividend decision bucked the industry trend while Aegon shares were down 5.7 percent, reflecting the dilutive effect of the share sale. The Dow Jones of index of European insurance shares which was up 1.6 percent.
Europe's insurance stocks index slumped to an all-time low in early March, reflecting investor concerns that falling stock markets and rising corporate bond defaults could eat into insurers' already depleted capital reserves.
Worries over insurers' capital have since eased, in part due to a broad financial market recovery, helping insurance shares rebound.
STAYING IN UK
Analysts said Prudential's dividend hike stood out at a time when most payouts to insurance company investors were under pressure, reflecting financial pressures amid economic uncertainty.
"They're doing well, but I think the dividend increase is a brave move given the cash generation," said ING analyst Kevin Ryan.
Last week, Britain's Legal & General and Aviva both cut their dividends.
Incoming Prudential CEO Tidjane Thiam underlined his confidence in the company's prospects, telling reporters he planned no strategic changes when he takes over the top job next month.
Thiam said Prudential did not intend to sell its UK division because it provides the group with cash and capital which underpins its fast-growing Asian and U.S. operations.
The UK unit had been seen as a potential target for British insurance industry consolidator Resolution, which on Tuesday bought Friends Provident, the UK's sixth-biggest life insurer.
"(The UK division) is a core business for us," Thiam said on a conference call.
"We have a base in the UK which provides us with cash and capital, and we have extraordinary growth opportunities in Asia which we are well positioned to capture. It's a very good strategic position."
Aegon Chief Executive Alex Wynaendts told Reuters the company is similarly inclined to hold on to its UK business, also cited as a potential Resolution target.
"Now we are clearly focused on increasing the return on capital of the UK business," Wynaendts said.
He added that it was prudent to raise the money the company needed to pay down its government debt from the market, as this would allow it keep its capital cushion in reserve.
"We are really still in uncertain times," he said.
Prudential's European Embedded Value operating profit fell 8 percent to 1.25 billion pounds ($2.06 billion) in the six months to June 30, still ahead of the 1.16 billion pound profit expected by analysts surveyed by the company.
Aegon had underlying pretax earnings of 404 million euros in the second quarter, down from 596 million euros in the same period last year, but shy of the consensus analyst expectation of 531 million euros.
(Editing by Richard Hubbard)
($1=.7079 Euro; $1=.6084 Pound)