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UPDATE 1-Direct Line IPO price priced at 175 pence per share

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* RBS to sell 30 percent of Direct Line shares

* RBS to raise 787 mln pounds from sale

(Adds details) By Matt Scuffham and Myles Neligan

LONDON, Oct 11 (Reuters) - Royal Bank of Scotlandset a price of 175 pence per share for the London listing ofBritish insurer Direct Line , close to the middle of therange originally set and valuing the business at 2.6 billionpounds ($4.2 billion).

RBS said on Thursday it would sell 450 million Direct Lineshares, representing 30 percent of the business, with a 15percent over-allotment option.

It will raise 787 million pounds from the sale, prior to theexercise of that option.

RBS is selling Direct Line in return for winning approvalfrom European Union regulators for a bailout by Britain duringthe 2008 financial crisis that left it 82 percent state-owned.

The price was near the midpoint of the 160-195 pence rangeset by the British bank when it launched the initial publicoffering (IPO) on Sept. 28.

RBS has been under pressure to secure a good price for thebusiness, with taxpayers sitting on a loss of 21.5 billionpounds after Britain pumped in 45 billion to rescue the bank.

RBS said it would continue to hold a 65.3 percent stake inDirect Line, assuming the overallotment option was taken up.

Trading in the shares will begin at 0700 GMT on Thursday.

($1 = 0.6242 pound)(Editing by Dan Lalor)

(matthew.scuffham@thomsonreuters.com; 02075426734; ReutersMessaging: matthew.scuffham.reuters.com@reuters.net)

Keywords: DIRECTLINE IPO/