Shares in Lloyds hit three-year high amid UK share sale hopes

LONDON - Shares in Lloyds Banking Group hit a 3-year high on Tuesday amid speculation the British government could start selling down its 39 per cent shareholding this month.

Sources familiar with the matter said the government is considering selling around a quarter of its shares - worth about 5 billion pounds - if it can do so at above the average buy-in price of 73.6 pence. One of the sources said a sale could come in the next 7 to 10 days.

Shares in Lloyds, which have more than doubled in value over the last 12 months, were trading at 78.4 pence at 0740 GMT, up 2.2 per cent.

UK Financial Investments, which manages the government's stake in Lloyds and Royal Bank of Scotland (RBS.L: Quote, Profile, Research) is reviewing the situation daily, sources have said, and will make a recommendation to Britain's finance ministry over when to commence a sale. The final decision will be made by Chancellor George Osborne.

Osborne may look to make the sale before the Conservative's annual party conference begins on Sept 29, one of the sources said. A sale would need to be made by mid to late October, another source said, before Lloyds enters a close period ahead of its third-quarter results on October 29.

Another factor being considered is the likely after-sale trading performance of the stock. One source familiar with government thinking said it is wary about pressing the button on a sale when the shares could have further to rise.

"The stock has traded well but a lot of people still see some upside too," the source said.

Morgan Stanley and Bernstein last week upgraded their target prices on the stock to 100 pence per share.