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UPDATE 1-NBT Bancorp to buy Alliance Financial for $233 mln

* Deal valued at about $233.4 mln

* Alliance shareholders to get 2.1779 NBT share for each Alliance share

* NBT will get additional $1.4 billion in assets

(Adds background, details, updates share movement)

Oct 8 (Reuters) - NBT Bancorp Inc will buy Alliance Financial Corporation in a deal valued at about $233.4 million to expand its footprint in New York.

The deal is the latest in a spate of community bank acquisitions. Industry experts are expecting more mergers among small banks, which are looking to build scale and cut costs as they contend with historically low interest rates.

The NBT-Alliance deal is valued at $48.24 per share -- a 22 percent premium to the stock's Friday close.

Alliance shareholders will receive 2.1779 common shares of NBT for each Alliance share they own.

NBT, which had assets of $6 billion as of June 30, will get an additional $1.4 billion in assets through the deal. This includes $890 million in net loans held for investment, and $1.1 billion in deposits.

The deal is expected to close in the second quarter of 2013.

Ambassador Financial Group served as financial advisor to NBT, while Keefe, Bruyette & Woods Inc advised Alliance on the deal.

Alliance shares rose as much as 16 percent to $45.86, while those of NBT were down 3 percent to $21.39 on Monday on the Nasdaq.

(Reporting by Ashutosh Pandey in Bangalore; Editing by Roshni Menon)

((ashutosh.pandey@thomsonreuters.com)(within U.S.+1 646 223 8780, outside U.S. +91 80 4135 5805)(Reuters Messaging: ashutosh.pandey.thomsonreuters.com@reuters.net))

Keywords: ALLIANCEFINANCIAL OFFER/