* Sale worth 482 mln pounds at Tuesday's closing share price
* Direct Line stock up 20.1 percent since October listing
By Kylie MacLellan
LONDON, March 12 (Reuters) - Royal Bank of Scotland plans to further reduce its stake in Direct Line, taking advantage of a more than 20 percent rise in the UK insurer's share price since it was floated last year.
The state-backed bank, which sold 34.72 percent of Direct Line at its stock market debut in October, said on Tuesday it would sell a further 15.3 percent or more of the insurer via a placing with institutional investors.
RBS has to have sold all of Direct Line by the end of 2014 having ceded control by the end of 2013 to meet a condition set by the European Commission for allowing the bank's bailout by the UK government following the 2008 financial crisis.
At Tuesday's closing share price the sale of 229.4 million shares would raise around 482 million pounds ($718 million) for RBS, which is also under pressure from regulators to boost its capital.
The sale comes as rival British home and motor insurer esure is in the middle of taking orders for its own London listing.
Esure, which like Direct Line was founded by insurance entrepreneur Peter Wood, is due to make its market debut on March 22 and has already received enough orders for the minimum number of shares it plans to sell, sources close to the situation said on Monday.
In response to regulatory pressures RBS last month also said it planned to sell between 20 and 25 percent of its U.S. business Citizens via a stock market flotation in New York in the next two years.
The bank is also sounding out some of Britain's biggest investment firms on their appetite for a stock market listing of the bank's small business lending arm, investor sources close to the talks told Reuters on Monday.
Britain pumped 45.5 billion pounds into RBS during the crisis in order to keep it afloat, wiping out 90 percent of its value for shareholders. The bank has since shed around 900 billion pounds worth of assets and is focusing on lending to British households and small businesses.
Lloyds Banking Group, which is also partially government owned, took advantage of improving equity markets to boost its capital on Monday by selling a 20 percent stake in wealth manager St. James's Place.
Following Tuesday's sale of Direct Line shares RBS said it expects to have a stake of around 49.99 percent in the insurer. If an over-allotment option, whereby more shares can be sold if demand is strong, is exercised, that would fall to 48.5 percent.
The sale is being run by Goldman Sachs, Morgan Stanley and UBS, who were also joint bookrunners for the flotation.
At the time of the float RBS agreed not to reduce its stake in Direct Line further for at least six months but bookrunners are allowed to grant a waiver however, and commonly do so in cases where a stock price has risen a lot and it is close to the end of the lock-up period.
Direct Line said it had agreed not to sell any further shares for another six months following Tuesday's placing.