UPDATE 2-Credit Agricole in talks to hand Greek bank to Alpha

* Shares gain 2.7 pct

* Sale price is symbolic 1 euro

* French bank to 150 mln euros in Alpha convertible bonds

* Deal to be completed by year-end

(Adds analyst comment, market reaction)

By Christian Plumb and Lefteris Papadimas

PARIS/ATHENS, Oct 1 (Reuters) - Credit Agricole said on Monday it planned to inject another 550 million euros into its Greek bank Emporiki under a deal to sell it to Alpha Bank for a symbolic one euro, as it prepares to quit Europe's most depressed economy.

France's third-largest bank has already injected about 10 billion euros into Emporiki since 2006, and wants to get out as Greek banks have been hammered by country's debt crisis and bad debts due to the resulting economic slump.

The planned sale is part of a wider retreat by Credit Agricole to its French retail business after a series of ill-fated moves to expand beyond its domestic market. Its willingness to pay to offload the lender also underlines the dire state of Greek banking.

The agreement represents a milestone for the bank, founded 118 years ago as a federation of regional agricultural lenders. Credit Agricole shares were up 2.7 percent, the top gainers among European banks, as it said the deal would help it reach end-2013 solvency targets.

"What's important is that Credit Agricole is hinting that the transaction may be core equity tier 1 enhancing for 2013," said KBW analyst Jean-Pierre Lambert. "They don't give the numbers at this point, but it could be good news for them."

Hoping to strengthen Emporiki further, Credit Agricole will boost a previously announced 2.3 billion-euro ($2.96 billion) recapitalisation by 550 million.

The move amounts to a re-allocation of part of 4.6 billion euros in net funding Credit Agricole had extended to Emporiki as of the end of June into equity.

In addition Credit Agricole would subscribe to 150 million euros in convertible bonds to be issued by Alpha Bank, which would become Greece's No. 2 bank after National Bank if exclusive talks underway result in a final agreement, said Paris Mantzavras, an analyst at Pantelakis Securities.

He said the fact that Emporiki is fully recapitalised would strengthen the new entity.

"Alpha Bank had the lowest capital needs compared to other Greek lenders and with the acquisition of Emporiki, which is fully recapitalised, it can cover a big part of its funding needs on its own and remain in the private sector," he said.

Alpha, now Greece's third biggest bank, has so far received 2 billion euros from Greece's bank support fund, the Hellenic Financial Stability Fund (HFSF).

For Credit Agricole, tax issues which have yet to be determined could make a big difference to how positive the deal is in the end. "The remaining question is the tax treatment of the equity losses," Lambert said. "It's to be negotiated with the French Treasury, but could provide an upside if a full tax shield is agreed upon."

The deal would also involve repayment in three installments of residual refinancing provided by Credit Agricole to Emporiki at the disposal date, the French bank said in a statement.

The deal is expected to be completed by the end of the year, Credit Agricole added.

Shares in Alpha Bank soared 9 percent after Credit Agricole's announcement.

"The news about Emporiki and the deal between Credit Agricole and Alpha Bank is a sign that action is being taken towards the restructuring of the Greek banking sector," said Takis Zamanis, head of trading at Beta Securities.

A banking source close to the talks had told Reuters on Sunday that Credit Agricole was expected to pick Alpha Bank as preferred bidder for its ailing Greek unit. National Bank

and Eurobank had also bid.

The HFSF had told Emporiki's potential buyers that it would approve a takeover only if the bank were recapitalised and fully funded before being sold.

The HFSF is a major shareholder in all three of the Greek lenders that were looking at Emporiki.

($1=0.7773 euros)

(Additional reporting by James Regan; Editing by Blaise Robinson, Greg Mahlich and David Stamp)

((james.regan@thomsonreuters.com)(+33)(0)(1 49 49 53 84)(Reuters Messaging: james.regan.thomsonreuters.com@reuters.net))