June 25 (Bloomberg) -- Barclays Plc, Britain's fourth- biggest bank, will raise 4.5 billion pounds ($8.9 billion) to bolster depleted capital and increase consumer lending in Asia and investment banking in the U.S.

Barclays rose 6.5 percent in London trading, the most in two months, after the company said in a statement it will sell as much as 1.58 billion shares to Japan's Sumitomo Mitsui Financial Group Inc. and sovereign wealth funds in Singapore, China and Qatar.

Chief Executive Officer John Varley told reporters he will use half the proceeds to lift the bank's so-called core Tier 1 capital ratio above its 5.25 percent target and the rest for ``business opportunities,'' including possible acquisitions. London-based Barclays sought outside funds after its capital level fell below U.K. competitors led by Royal Bank of Scotland Group Plc.

``This is both a cushion against the market environment as well as a war chest,'' said Georg Grodski, head of credit research at London-based Legal & General Group Plc.

Barclays gained 20.25 pence to 331 pence today in London, valuing the bank at 21.7 billion pounds. The shares were today's best performer in the eight-member FTSE All-Share Banks Index.

The cost of protecting European bank debt fell for the first time in a week after Barclays announced its capital plans. Credit-default swaps on Barclays fell 2 basis points to 100, Credit Suisse Group prices show.

Royal Family

Barclays is selling shares to Challenger, a company set up to represent Qatar's royal family; Qatar Investment Authority; Temasek Holdings Pte and China Development Bank. Sumitomo in Tokyo will buy 500 million pounds of shares at 296 pence each.

Banks and securities firms have raised $313 billion in the past year after record writedowns and credit losses of almost $400 billion from the collapse of the subprime mortgage market. Singapore's Temasek also has invested in New York-based Merrill Lynch & Co., the third-biggest U.S. securities firm by market value, and London-based Standard Chartered Plc, the U.K.'s third- biggest bank by market value.

Varley said Barclays will expand consumer lending in Russia, Pakistan, India and other fast-growing emerging markets. It will increase securities trading and private banking in Asia, helped by the new partnerships with Sumitomo and Qatar Investment Authority, he said.

Barclays plans to open 300 branches worldwide this year after starting a consumer bank in Pakistan and acquiring Moscow- based Expobank for $745 million in March, Varley said.

`Substantially High Share'

In the U.S., Barclays plans to increase securities trading, credit-card lending and asset management, he said. In its home market, Barclays is taking a ``substantially high share'' of the mortgage market ``at much better margin'' as rivals pull back, Varley said.

``We expect the longer-term growth prospects of the company to be higher than its domestic U.K. peers,'' Merrill analyst John-Paul Crutchley wrote in a note to clients today. He has an ``underperform'' rating on the stock.

All Barclays investors will get the chance to buy shares at 282 pence a share. The sovereign wealth funds and other unidentified investors will purchase whatever is left. China Development Bank is entitled to 136 million pounds of new stock, while Challenger, Qatar Investment Authority and Temasek will be able to buy as much as 2.5 billion pounds of shares.

`High Quality'

``We have anchor investors of high quality,'' Varley said.

Barclays first sold shares to Temasek and China Development Bank last August, when it tried unsuccessfully to buy Amsterdam- based ABN Amro Holding NV. The value of Temasek's 2.1 percent stake is down about 525 million pounds since then, and China Development Bank is down about 782 million pounds on its stake of 3 percent, based on today's closing share price.

Temasek bought $600 million of Merrill Lynch shares in February, increasing its investment in the U.S. brokerage to $5 billion, according to a Feb. 25 filing with the Securities and Exchange Commission. Temasek exercised an option to buy an additional 12.5 million shares in the New York-based firm at $48 apiece, Merrill said in the filing. That's the same price Temasek agreed to pay in December. Merrill was trading at $35.97 today at 2:55 p.m. in New York.

By finding investors to guarantee the share sale, Barclays isn't relying on investment banks to underwrite the offering. It will pay each of the selected investors 1.5 percent of their maximum committed funds, or a total of 67 million pounds, to guarantee the sale. Credit Suisse Group and JPMorgan Cazenove are working with Barclays Capital as joint brokers on the sale.

Discounts

Barclays's offer of 500 million pounds to Sumitomo was priced at a 4.7 percent discount to the bank's closing share price yesterday. The offering of 4 billion pounds was priced at a 9.25 percent discount to yesterday's close of 310.75 pence a share. All existing investors will be offered three new shares at 282 pence for every 14 they own.

The two Qatari investors will hold a maximum 10 percent of Barclays, depending on how many other investors buy into the offering. Sumitomo will own a maximum of 2.1 percent, while China Development Bank could increase its total investment to 3.1 percent and Temasek could own up to 2.9 percent.

British banks face slower growth amid higher funding costs and rising defaults as house prices fall at the fastest rate since the recession of the 1990s. The credit-market freeze has halted sales of mortgage-backed securities, which lenders including HBOS Plc and Bradford & Bingley Plc use to fund property loans.

Property Loans

Barclays has written down 1.7 billion pounds on credit assets so far this year. That's less than RBS, the U.K.'s second- biggest bank, which wrote down 5.9 billion pounds this year, and less than HBOS, the U.K.'s biggest mortgage lender, which marked down 2.8 billion pounds.

While credit markets are ``challenging and difficult,'' Barclays is ``going to outperform'' peers by writing down fewer assets in the securities unit, President Robert Diamond told reporters today. Ratings downgrades on securities guaranteed by MBIA Inc. and Ambac Financial Corp. ``did not have a big impact'' on credit assets held by Barclays Capital, Diamond said.

Barclays Capital's credit-related trading is improving and the unit has a ``very strong'' flow of business, Jerry del Missier, head of Barclays Capital, said in a June 9 interview. While the unit is focused on growing through hiring and investment, it won't rule out acquisitions, he said.

First Half

Barclays will pay a dividend of 11.5 pence a share in cash for the first half, unchanged from last year, it said. RBS and HBOS plan to pay a first-half dividend in stock to save capital.

The proceeds of the share sale will cover about 80 percent of Barclays's dividend payout over the next two years and lift its core equity capital ratio to about 6 percent, said Derek Chambers, a London-based analyst at Standard & Poor's Equity Research Ltd. The new capital ratio would be ``adequate and similar to other major U.K. banks,'' though still less than continental European peers, said Chambers who has a ``hold'' rating on the stock.

Varley and the bank's board will buy their full entitlement to stock, he said in a letter to employees today.

``The market may well continue, in the coming months, to be fixated on the short term -- and that will continue to create volatility in the share prices of banks,'' Varley also said in the letter obtained by Bloomberg News.

Barclays's new shares will start trading July 22.

To contact the reporter on this story: Ben Livesey in London blivesey@bloomberg.net

Last Updated: June 25, 2008 15:04 EDT