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UPDATE 2-Shares of Dutch insurer NN Group rise more than 5 pct in stock market debut

market debut@

* Shares priced at 20 euros a piece, in middle of range

* Values NN Group at around 7 bln euros

* NN Group set to be largest European IPO so far in 2014

* ING will earn gross proceeds of 1.5 bln euros

(Adds details, removes Tuesday from lead)

AMSTERDAM, July 2 (Reuters) - Shares in NN Group, the insurance arm of Dutch financial services company ING Group, rose more than 5 percent on their stock market debut on Wednesday, in what was set to be Europe's largest stock flotation so far this year.

ING, priced the shares at 20 euros each late on Tuesday, the middle of the range, valuing NN Group at roughly 7 billion euros ($9.55 billion), it said. The shares immediately rose above 21 euros.

ING said that it expected the listing to raise about 1.5 billion euros ($2.05 billion). It had increased the number of ordinary shares being listed by 10 percent to 77 million due to "significant" investor demand.

The group has been forced to spin off the insurance business as part of the terms of a 10 billion euro bailout at the height of the financial crisis.

The offering will have an estimated negative impact of approximately 3.4 billion euros on ING Group's shareholders' equity, to be booked in the third quarter, it said.

The insurance business was once ING's mainstay, with highly profitable global operations, when it was a leading proponent of the then fashionable bancassurance business model.

But ING, then one of the world's largest banks, has had to sell off tens of billions of dollars in foreign assets, radically reshaping itself to comply with the terms of the rescue, shedding investment banking operations and cutting thousands of jobs.

Its ownership of NN Group will be reduced to 71.4 percent at the flotation, excluding the exercise of a 15 percent over-allotment option.

IPO MARKET JUMPS

ING said it intends to use the net proceeds of the offering to reduce its double leverage.

Of the shares being offered, approximately 94.8 percent were allocated to Dutch and international institutional investors, it said, while approximately 5.2 percent went to Dutch retail investors.

The listing comes a day after the Dow Jones and S&P 500 closed at record highs and amid high global demand for IPOs. Companies around the world have raised $107.2 billion from stock flotations in the first half of 2014, a 60 percent jump from a year earlier.

The cash raised in European IPOs rose almost 250 percent to $41.2 billion through June 30. But there have been recent signs of cooling as, spoilt for choice, investors are becoming more selective.

Some listings in the past few weeks have struggled to attract investor interest in the bookbuilding process and their shares have traded down after their flotation.

Still, shares in Dutch specialty chemicals distributor IMCD rose nearly 5 percent on their first day of trading in a 462 million euro flotation in Amsterdam last week. The shares are up 11 percent in three trading days.

NN Group, which has a strong position in the Dutch domestic market, a substantial European presence, operations in Japan and a global investment management business, said it will pay a one-off dividend of 175 million euros next year on profits in the second half of 2014.

The bank is due to pay back its final tranche of state aid with a 1.025 billion euro payment in May 2015, a move that could allow the bank to resume paying dividends.

As part of the terms of its bailout, ING said it aims to have sold more than 50 percent of its shareholding in the insurer before the end of next year and the remaining shares before the end of 2016. ($1 = 0.7331 euros)

(Additional Reporting By Freya Berry and Thomas Escritt; Editing by Andrew Hay and Susan Fenton)