UPDATE 1-Telefonica Germany shares rise after IPO

* First trade 5.70 above offer price of 5.60

* Telefonica sold 23 pct of O2 Germany, valued at 6.4 bln

* Shares trade 5.76 euros by 0937 GMT

FRANKFURT/MADRID, Oct 30 (Reuters) - Shares in Telefonica's O2-branded German unit started trading r oughly 3 percent above th eir initial public offering price on Tuesday in Europe's largest new listing in more than a year.

Shares in Germany's smallest mobile operator, which were placed with investors for 5.60 euros each on Monday, started trading at 5.70 euros and rose to 5.76 euros by 0937 GMT, giving the unit a value of 6.4 billion euros ($8.3 billion).

Telefonica raised nearly 1.45 billion euros from listing the 23 percent stake in its German operation, which is its third-largest in Europe after its home market of Spain and Britain. It initially set the price in the lower half of its indicative range, reflecting investor concerns about being minority shareholders and the relatively small flotation.

The IPO proceeds will largely go to reduce Telefonica's debt and is part of a programme of asset sales and cost cuts aiming to protect Telefonica's credit rating. 1/8I D:nL5E8LT6H5 3/8

``There is some good appetite for the shares,'' a Frankfurt-based trader said.

The listing is the biggest IPO in Europe since Spain's Bankia raised 3.1 billion euros in July 2011.

``Investors appear to have demanded a discount given Telefonica position as a forced seller, the uncertainty surrounding its future plans for Telefonica Germany, limited prospects for in-market consolidation and recent comments by local competitors indicating a deteriorating pricing environment,'' said analysts at Espirito Santo Investment Bank.

``Still it was a clever move of the company to significant lower the range of its offering in the previous days. Now at least it looks like a successful listing,'' the trader said.

Europe's second-largest telecoms company by valuation originally set an indicative price range of 5.25-6.50 euros per share for the offering. That guidance was narrowed twice during two weeks of bookbuilding, latterly to 5.50-5.60 euros.

Telefonica, which must raise 7-8 billion euros a year through 2015 to cover debt repayments, is under pressure to pare 58 billion euros of debt in order to save its investment grade rating and avoid spiralling debt financing costs.

The firm faces the prospect of a downgrade if its crisis-hit home market of Spain, rated just one notch about junk status by Moody's and Standard and Poor's, slips into non-investment territory.

Telefonica sold some of its stake in China Unicom in June and its Atento call centre business to U.S. private equity firm Bain Capital for around 1 billion euros, including debt, earlier this month.