Treasury makes £500m selling Lloyds shares as it reduces its stake in the bank

The latest trade takes the government's holding down to 23.9%

Lloyds shares rose 1.14p or 1.5 per cent to 79.15p in morning trading (GETTY IMAGES)

The Treasury has raised around £500 million by selling shares in Lloyds Banking Group.

The move marks a further reduction in its stake in the bank it bailed out in 2008. At the height of the financial crisis, the government pumped £20 billion into Lloyds to keep it afloat in return for a 41 per cent stake.

The government previously sold off part of its holding to institutions, raising about £7.4 billion and is now selling down the remainder of its stake through share sales, all at a price higher than the 73.6p average price it paid for the shares.

The latest trade takes its holding down to 23.9 per cent and the total amount raised from the process to just under £8 billion.

Lloyds shares rose 1.14p or 1.5 per cent to 79.15p in morning trading.

The bank is expected to announce its first payout to investors since its bailout when it reports its annual results on Friday, with reports suggesting a dividend in the region of 0.5p-1p.

It is hoped a dividend would draw more investors to the stock, making it easier for the government to offload more of its shares in the bank.

Prior to its rescue, Lloyds had a record of being one of the highest dividend paying stocks in Britain, handing over half its profit to shareholders in 2005 and 2006.

Morgan Stanley has been handling the share sales and is contracted to continue doing so until the end of June.

UK Financial Investments, the body charged with overseeing the government's stakes in Lloyds and fellow bailed out recipient bank Royal Bank of Scotland, could make another large sale to institutions or offer shares to private retail investors after that time.

A sale of shares in RBS is not thought to be on the cards for the next two years, as the stock is trading well below the price the government bought it stake at.

Additional reporting by Reuters