UPDATE 2-UK estate agent Countrywide plans stock market return

* Says to raise 200 mln stg from selling new shares

* Refinances debts to reduce interest bill

* Expects to be part of FTSE-250 midcap index

By Tom Bill

LONDON, Feb 20 (Reuters) - Countrywide Holdings, Britain's largest estate agent by revenue, plans to return to the stock market after nearly six years in private hands, hoping a fragile housing market recovery will be enough to tempt investors amid growing demand for new issues.

The company, bought for 1.1 billion pounds ($1.7 billion) by a U.S. private equity firm in May 2007, said on Wednesday it planned to raise 200 million pounds by selling new shares.

It will use the money to repay some debt and grow the business, including through acquisitions.

Countrywide declined to say what it might be worth after floating, but expected to be included in the London Stock Exchange's FTSE-250 index of mid-cap companies.

Rising equity markets across Europe have fuelled a pick up in initial public offerings (IPO) in recent months. British housebuilder Crest Nicholson returned to the stock market last week.

Countrywide Chief executive Grenville Turner said that listing showed the IPO market was functioning normally again following the financial crisis, and was also encouraged by signs of improvement in the mortgage and housing markets.

"Sentiment is much stronger than it was five years ago and the availability of affordable mortgages is coming back," Turner said on a conference call with journalists.

House price data is mixed in Britain but there is tentative evidence to suggest prices are steadying as government measures kick in to encourage banks to lend more.

The average house price in Britain fell from a peak of 199,612 pounds in August 2007 to 154,663 pounds in April 2009 before climbing to 162,932 in January this year, according to mortgage provider Halifax, part of Lloyds Banking Group .

Share prices for the country's major housebuilders have soared over the last year as a result of the government's show of support, but some analysts question whether political initiatives will be enough as banks seek to reduce their risks and store capital to meet tougher regulations.

As part of a wider refinancing deal with its lenders, Countrywide said it had raised a further 100 million pounds of debt in a move that will cut its annual interest bill from 25 million pounds to less than 3 million pounds.

Countrywide, which sells and rents houses and flats, was listed between 1986 and 2007 before it was taken private at the peak of the market by U.S. private equity group Apollo. Fellow private equity firm Oaktree Capital took control in 2009 via a debt for equity swap.

Countrywide makes 25 percent of its sales in the more affluent London and south-east area of Britain, and interest in buying homes was increasing across the country despite "regional variations", according to Turner.

The company reported earnings before interest, tax, depreciation and amortisation (EBITDA), excluding one off items, of 63 million pounds for 2012, on revenues that rose six percent to 540 million pounds.

Goldman Sachs, Jefferies International Ltd and Credit Suisse will be bookrunners for the listing.