* Balboa price tag seen at $1.5-2 billion - banker
* QBE would have to raise equity for deal - analysts
* QBE shares on halt pending market update by Friday (Adds analyst, banker comments, share price)
MELBOURNE/NEW YORK, Feb 3 (Reuters) - QBE Insurance , Australia's biggest insurance group, is in talks to buy U.S. insurer Balboa from Bank of America , a media report said on Thursday, sparking talk that QBE would have to sell new shares to help fund the deal.
Balboa could fetch $1.5 billion to $2 billion, said an investment banker not involved in the deal.
Negotiations are advanced for a deal that includes up-front payments as well as an amount based on Balboa's future performance, Bloomberg reported. A deal could be reached this week, it added.
QBE declined to comment on the report, but put its shares on trading halt on Thursday saying it would update the market by early Friday on several topics including "acquisition activity".
Two analysts speculated that at A$1.5-2 billion, QBE would have to raise new equity to fund more than half the deal.
"The market's concern around a large acquisition would be around any capital raising to fund the deal," CLSA analyst Daniel Toohey said.
A capital raising would come at a tough time with QBE's shares having tumbled by one-third since the end of 2009 due to a string of profit warnings and earnings disappointments.
Bank of America declined to comment on the report.
It said last year that it planned to sell Balboa as part of asset sales to raise $3 billion to complete its repayment of U.S. government bailout funds.
The bank has since raised the funds -- meeting the final requirement laid out by the Federal Reserve -- by selling large stakes in BlackRock and China Construction Bank.
Balboa provides lenders' insurance on foreclosed and distressed properties. The business is similar to ZC Sterling, which QBE bought in 2008 for $575 million.
QBE has made more than 75 acquisitions in 10 years to expand into 50 countries, including buying the Australian arm of U.S. insurer CUNA Mutual Group for an undisclosed sum last week and the U.S. insurance operations of RenaissanceRe Holdings for $275 million last November.
QBE also plans to update the market on preliminary 2010 results and recent Australian weather disasters, amid concerns it may not meet its insurance margin target of 16 percent for 2010.
It is not expected to face as big a hit from Australian flood claims as its domestic rivals Suncorp Group and Insurance Australia Group , which have already given the market preliminary estimates on damages claims.
QBE shares last traded at A$16.94, valuing the group at A$17.8 billion. (Reporting by Sonali Paul and Paritosh Bansal; Editing by Mark Bendeich)