UPDATE 1-Dexia to make loss on Luxembourg unit sale

* Sale to Qatar's Precision Capital (90 pct), Luxembourg (10 pct

* Transaction price 730 mln euros, same as initially agreed * Dexia pumps in 204 mln euros, sees loss of 199 mln euros

(Adds details, background)

BRUSSELS, Oct 5 (Reuters) - Franco-Belgian lender Dexia

said on Friday it had completed the sale of its Luxembourg arm to Qatar's Precision Capital and the Luxembourg state and would likely suffer a loss of 199 million euros ($258.8 million) as a result.

However, Dexia said it had already set aside a similar amount into its accounts for the first half of 2012.

The prospect of Dexia having to take a large loss related to the sale had led to speculation that it would need to find funds from elsewhere. It already incurred losses of 11.6 billion euros in 2011 and 1.2 billion euros in the first half of this year.

Fresh funds would likely have to come from the states currently guaranteeing its borrowings -- principally Belgium and France, and to a lesser extent Luxembourg.

Dexia sold Banque Internationale a Luxembourg (BIL) for 730 million euros but had to pump 204 million euros into the unit before the sale to cover some of the losses BIL incurred from the transfer of its bond portfolio to Dexia.

Precision Capital, owned by Qatar's al-Thani royal family, will own 90 percent of BIL, and Luxembourg the remaining 10 percent. The deal was initially announced last December, shortly after Dexia was bailed out for a second time in three years.

Dexia is in the process of selling off its businesses -- it concluded the sale of Turkish banking unit Denizbank to Sberbank

last week .

The company, once the world's biggest municipal lender, is set to become a portfolio of bonds and outstanding loans with guarantees from the three countries to cover its funding. ($1 = 0.7689 euros)

(Reporting by Philip Blenkinsop; editing by Keiron Henderson)

((philip.blenkinsop@thomsonreuters.com)(+32 2 287 6838)(Reuters Messaging: philip.blenkinsop.thomsonreuters.com@reuters.net))