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* JR Kyushu to price shares between 2,400 yen and 2,600 yen
* Japan to raise as much as $4 bln from JR Kyushu IPO
* Japan govt to sell entire stake in JR Kyushu (Adds background)
By Junko Fujita
TOKYO, Oct 6 (Reuters) - The Japanese government is set to raise as much as $4 billion by selling its entire holding in Kyushu Railway Co, according to a government filing on Thursday, in what will be Japan's largest initial public offering (IPO) this year.
Kyushu Railway, better known as JR Kyushu, will price its IPO between 2,400 yen and 2,600 yen per share, according to the filing.
The government, which currently owns 100 percent of Kyushu Railway, plans to sell all of its 160 million shares in the railway operator. If the price is set at the top of the range, the offering size will be 416 billion yen ($4.02 billion).
Last month the government set the indicative price of the IPO at 2,450 yen a piece.
The government plans to set the final price on Oct. 17 after gauging demand from investors.
The shares will be marketed at a time investors are cautious about the market. Japanese stocks are seen settling for an annual drop this year, ending a four-year rally driven by Prime Minister Shinzo Abe's initiative to end deflation, according to a recent poll by Reuters.
The benchmark Nikkei 225 has fallen 11 percent so far this year on concerns a stronger yen would hurt corporate earnings.
But with a potential market value of 416 billion yen, JR Kyushu is expected to be included in Japan's major indexes, and thus see demand as passive investors like index funds would be forced to hold the shares in their portfolios.
The government sold its shares in other railway operators in the past, such as the East Japan Railway Co, West Japan Railway Co and Central Japan Railway Co, as it broke up and privatized the former state-owned railway network.
JR Kyushu, which operates in Japan's southern island of Kyushu, could take advantage of the foreign tourist boom on the island.
The island boasts hot springs and scenic landscapes and attracted a record 2.8 million foreign visitors last year, an increase of 69 percent from a year earlier, outpacing Japan's 47 percent rise.
And the number of foreign tourists has been increasing every month from a year earlier so far this year, hitting 2.2 million in July, according to the local government, despite part of the island being hit earlier this year by a series of deadly earthquakes that killed at least 40 people. ($1 = 103.5600 yen) (Reporting by Junko Fujita; Editing by Muralikumar Anantharaman)