(Adds fund manager, analyst comment, updates shares)
By Alison Tudor and Jean-Michel Belot
LONDON/PARIS, July 28 (Reuters) - The French government will raise about 1.3 billion euros from selling part of its holding in Renault in a move seen boosting long term sentiment in shares of the French carmaker.
Bankers handling the sale said the French government would sell about 8.5 percent of Europe's fourth biggest automaker through the open market.
After the placement and a subsequent offering to employees, the French state will own about 15 percent of Renault's share capital, down from 25.9 percent previously.
The move was welcomed by many equity analysts as it will boost Renault's free float and thus make it a more liquid investment.
"It is very good news. The government has lifted the lid on the stock which means it will be able to reach its potential," said Patrice Solaro, auto analyst at Julius Baer, who said the share now had upside to around 60 euros.
The French government, which benefited from a recent rally in Renault's share price, said it would retain the 15 percent stake in the short to medium term.
At 1303 GMT, Renault shares were trading 1.06 percent lower at 49.27 euros on pressure from the placement while the autos sector was down 0.2 percent.
But dealers said the books were covered, meaning the bankers had found buyers for all the shares. The sale may be expanded by 2.4 million shares if demand is strong.
MOROCCO DEAL
Separately on Monday, Renault said it signed an 8.7 million euro deal to buy the Moroccan government's 38 percent stake in local car assembler SOMACA, which produces several models of Fiat, Peugeot, Citroen and Renault cars.
The French firm will buy 26 percent of SOMACA by September and another 12 percent by the end of October 2005, lifting its stake to 46 percent from eight percent currently.
The Moroccan entity's other main stock holders are Italy's Fiat Auto and rival French car manufacturer Peugeot with 20 percent apiece, as well as private investors who held about 14 percent.
The SOMACA plant has been functioning in Casablanca since 1959 and has a capacity of 60,000 vehicles a year. Renault will use the plant to build its low-cost L90 family car, destined for sale in Morocco, eastern Europe and Russia for around 5,000 euros, a Renault spokeswoman said, adding that the L90 may not be sold under the Renault brand.
LONG TERM GAIN
Renault is banking on new models including its new Megane and Scenic minivan to lift profits and several investors see momentum shifting to Renault's favour from previous sector favourite and home rival PSA Peugeot-Citroen .
Renault's stock has risen over 30 percent in the last two months, outperforming the auto sector and PSA's shares.
WestLB Panmure raised its recommendation on Renault stock after the placement. Analyst Henrik Lier said the possible placement of the stake was his main reason for not upgrading the share after first-half results last week and ahead of what he believes will be a good newsflow in the second half.
"The expectation of the government's placement had capped the share price at about 50 euros but that cap appears to have gone now," he said. His new target price is 55 euros.
Renault last week saw its operating profit sink by over a third in the first half although its bottom line, or net profit, jumped 32 percent, boosted by a generous contribution from its Japanese partner Nissan .
JP Morgan is acting as the global coordinator of the sale of 24.2 million shares and Societe Generale and Deutsche Bank are the bookrunners.
JP Morgan said the shares were being offered to institutional investors outside the United States at a price between 48.65 and 49.15 euros per share in an accelerated bookbuild, a swift auction of shares among professional investors orchestrated by an investment bank.
Final pricing is usually decided at the end of the auction.