LONDON (AP) - Lloyds Banking Group plc. said yesterday that it has placed £4 billion ($6.35 billion) of shares which will enable it to make a partial repayment of government support.

The auction maintained the government's stake in Lloyds at 43.4 percent of its ordinary shares. The government's preference shares - which do not carry votes but pay interest - will be redeemed, saving Lloyds £480 million a year.

The government will net £2.7 billion from the transaction, the bank said, making it the first British bank to repay part of its bailout.

The redemption of the preference shares means that Lloyds is again free to pay dividends, though it has said it will not pay any this year.

Shareholders including the government subscribed to 87 percent of the available shares. The bookrunners - Citigroup Global Markets UK Equity Ltd., JP Morgan Cazenove Ltd. and UBS Ltd. - placed the 13 percent yesterday.

Last year, the government invested £17 billion in bailing out Lloyds, which ran into trouble with its takeover of Halifax/Bank of Scotland, buying a mix of ordinary shares with voting rights and the non-voting preference shares. That kept the government from holding a majority of the voting shares.

Shares in the open offer were priced at 38.4 pence, compared to Lloyds Group's closing share price of 66 pence on Friday.

Based on the initial takeup, Lloyds said it would redeem 3.48 million preference shares, and planned to redeem the remaining 525 million shares when the rump of shares were sold.

Lloyds shares were down 8.9 percent at 60.3 pence in afternoon trading on the London Stock Exchange.

The bank is still negotiating terms for participating in the government's program to insure banks against losses on bad assets.

Treasury minister Paul Myners said the share placing was a sign of progress.

"To imagine, three months ago, that we could have raised primary equity for a major UK bank experiencing the sort of bad debts that Lloyds was announcing is extremely difficult," Mr. Myners said in an interview with BBC radio.

"I think we have now moved into a new territory in which institutional investors are saying 'We now have confidence in UK banks, their capital is strong and they are clearly again lending and supporting the UK economy' So it's good news," Mr. Myners said.

Lloyds' result contrasts with Royal Bank of Scotland's earlier share offer, which was priced above the current market price.