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RPT-Spain's Santander buys smaller rival Popular for 1 euro with capital hike

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MADRID, June 7 (Reuters) - Spanish bank Santander on Wednesday said it would buy struggling rival Popular for one euro and carry out a capital increase of around 7 billion euros ($7.9 billion) to cover the capital and provisions required to boost Popular's finances.

Earlier the European Central Bank and the Spanish state-owned bank fund FROB said they approved of the operation which would not involve any cost to the taxpayer and that would not affect bank deposits.

Struggling under the weight of 37 billion euros of non-performing real estate assets left over from Spain's financial crisis, Popular had seen its share price slump by more than a half after the ECB body that winds down troubled banks warned Popular may need to be wound down if it failed to find a buyer.

Santander, which did not absorb any underperforming lenders during Spain's banking crisis, said the acquisition of Popular would accelerate growth and profit generation from 2019 onwards.

It said it would set aside 7.9 billion euros to cover for non-performing assets after the acquisition.

Popular's non-performing loan ratio is around three times above the average of its Spanish rivals. ($1 = 0.8876 euros) (Reporting by Sonya Dowsett, Andres Gonzalez and Jose Elias Rodriguez in Madrid, additional reporting by the Frankfurt and Brussels newsrooms; Editing by Julien Toyer)