UPDATE 1-Banorte shares climb after merger deal with Interacciones

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MEXICO CITY, Oct 26 (Reuters) - Shares in Mexican bank Grupo Financiero Banorte rose more than 5 percent on Thursday, a day after it agreed to buy peer Grupo Financiero Interacciones in a deal that would create the country's second-biggest financial group.

Shares of Interacciones fell nearly 10 percent on Thursday.

Banorte offered 13.7 billion pesos ($719.39 million) in cash and 109.7 million of its shares in a deal that would formally join two lenders whose respective chairmen are father and son.

Subsidiaries of Grupo Financiero Interacciones would be absorbed by Banorte, said the banks, which are completing due diligence. The deal is subject to approval by the banks' shareholders and Mexico's competition and financial regulators.

Rumors of a takeover had circulated since Carlos Hank Gonzalez stepped down as chief executive of Interacciones three years ago to join the board of Banorte, where he is now chairman of the bank his grandfather once headed.

Interacciones has a market capitalization of about 28 billion pesos ($1.49 billion) according to Thomson Reuters data. By comparison, Banorte is worth some 327 billion pesos. (Writing by Daina Beth Solomon; Editing by Paul Simao)