UPDATE 2-Flagstar raising $100 mln to shore up capital

(Adds analyst's comments, updates share movement)

By Ratul Ray Chaudhuri

BANGALORE, May 16 (Reuters) - Flagstar Bancorp Inc (FBC.N: Quote, Profile, Research), one of the largest savings and loans based in the U.S. Midwest, said it will raise $100 million by selling equity stakes at a discount, in an effort to bolster its capital base.

Flagstar shares fell as much as 22 percent to $4.65, before recouping some losses to trade down $1.06 at $4.89 Friday afternoon on the New York Stock Exchange.

The company said it will sell about 11.4 million common shares to seven institutional investors at $4.25 each -- a discount of about 29 percent to the stock's Thursday close.

The sale comes three months after Flagstar suspended its common stock dividend, citing a need to conserve cash in a deteriorating residential real estate market.

Last month, the Troy, Michigan-based thrift posted a $10.6 million first-quarter loss. It ended Thursday with a market value of about $359 million, according to Reuters data.

"It's (the capital raise) diluting existing shareholders and existing book value to the tune of 18 percent," said Terry McEvoy, an analyst at Oppenheimer & Co. "That's putting pressure on the stock."

The company is issuing 23.3 million shares, increasing its share count by more than a third to 84.1 million, McEvoy said.