UPDATE 1-Japan to raise $10 bln through Japan Tobacco share sale

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TOKYO, Feb 25 (Reuters) - Japan's government will sell around a third of its stake in Japan Tobacco Inc, the world's No.3 tobacco company, in a deal that would raise about $10.4 billion for reconstruction of areas devastated by a 2011 earthquake and tsunami.

Prior to the stake sale, Japan Tobacco will buy back as much as 250 billion yen ($2.7 billion) worth of its own shares, the regulatory filing announcing the sale showed on Monday.

The Ministry of Finance, which owns just over 50 percent of the former state monopoly, is selling 333 million shares, according to the filing.

Japan's parliament in 2011 passed a set of bills including tax hikes and government share sales in state-owned companies to help finance the roughly $270 billion it expects to spend to rebuild the northeast coast after the quake in March that year.

The sale of Japan Tobacco shares has been expected since then, and conditions for a sell-down have improved in recent months.

Prime Minister Shinzo Abe was swept to power in a December election promising aggressive monetary and fiscal policies to tackle the country's prolonged deflation. Japan's benchmark Nikkei share average soared to a 53-month high on Monday.

Shares in Japan Tobacco closed on Monday at 2,901 yen, up 1.4 percent on the day. At that price, the share sale would be valued at about 967 billion yen.

Japanese law requires the government to hold at least one-third of Japan Tobacco's 2 billion shares outstanding.

The ministry last June selected JPMorgan Chase & Co, Daiwa Securities Group Inc, Goldman Sachs Group Inc and Mizuho Securities as underwriters for the offering.

Japan also plans to sell shares of Japan Post Holdings Co, which runs the nation's biggest savings institution, to raise money for reconstruction.

($1 = 93.2200 Japanese yen)

(Reporting by Shinichi Saoshiro; Writing by Junko Fujita; Editing by Edwina Gibbs and Alex Richardson)