UPDATE 1-Lincoln to decide soon on taking federal funds

* Says can handle conditions attached to funds

* Shares slightly higher

NEW YORK, May 29 (Reuters) - Lincoln National Corp (LNC.N: Quote, Profile, Research), one of the largest U.S. life insurers, will decide soon whether to accept up to $2.5 billion in federal bailout funds, Chief Executive Dennis Glass said on Friday.

Glass is making the decision even as scores of U.S. banks are trying to extricate themselves from the bailout program, unhappy with the restrictions on spending and compensation attached to the government funds.

"We may or may not use TARP," Glass said at the Sanford Strategic Decisions conference. "If we do take it, we think we will be able to handle the restrictions on it."

Lincoln needs to make a decision within 30 days of its May 15 notification of approval for the program.

It was one of a handful of insurers that sought to be included in the program, initially extended to the troubled U.S. banking sector. Life insurers argued for the help as investment losses eroded capital.

But the insurance sector's finances have improved during months of waiting for final approval for the bailout package, reflecting a partial recovery in stock markets.

Lincoln has been approved for up to $2.5 billion from the U.S. Treasury program, originally referred to as TARP and now officially known as the Capital Purchase Program.