DUBLIN (Reuters) - Investors responded strongly to the first element of Bank of Ireland's 3.4 billion Euros ($4.53 billion) capital raising plan and domestic investors also expressed support for its upcoming rights issue.

Demand for the institutional share placing to raise 500 million Euros kicking-off the bank's four-pronged plan to raise capital was almost four times oversubscribed when the process closed, a market source told Reuters.

The bank will raise the rest of the capital through a 1.9-billion Euro rights issue, a debt-for-equity swap and by converting government preference shares into ordinary stock in a package Dublin hopes will help set it apart from Greece's woes.

"The rights issue, so far as we can determine the attitude of domestic institutions, will be strongly supported," Frank O'Dwyer, chief executive of the Irish Association of Investment Managers (IAIM), told Reuters.

"The overall reaction was positive that this was a big enough transaction and equity fund raising to deal with all of the bank's problems," said O'Dwyer, whose IAIM has 14 members managing total assets of 250 billion euros.

Ireland last year came close to a similar market attack as Greece due to its own fiscal and banking crises and Bank of Ireland's plan will test investment appetite for Irish assets as a whole as the rescue of the fellow euro zone member kicks off.

O'Dwyer said based on anecdotal evidence overseas demand would also be high for the rights issue.

"People see investing in the first Irish bank to step forward and do the fundraising...as a proxy for investing in the recovery in the Irish economy," said O'Dwyer, adding IAIM members owned less than 10 percent of Bank of Ireland between them.

Strong demand for the placing saw Bank of Ireland shares close up more than six percent on Monday but they had retreated 4.9 percent to 1.817 euros by 12.58 p.m. GMT yesterday as the sector took a hit from uncertainty over the release of financial aid for Greece.

The financial regulator told Bank of Ireland last month to raise 2.7 billion Euros to meet new minimum capital requirements and compensate for losses on discounted loans sold to the National Asset Management Agency (NAMA), Ireland's "bad bank".

The state expects to own about 36.5 percent of the lender by converting about one billion Euros of preference shares and taking part in the rights issue. Warrants entitling it to a further stake will be wiped out by a 500-million Euro payment.

Bank of Ireland is in the strongest position among five banks participating in NAMA - the bad bank set up last year to cleanse balance sheets of property development loans - which between them are looking for up to 32 billion Euros in capital.

Allied Irish Banks, seen next in line to raise private capital, will give an update on its plans at its annual shareholder meeting today.

Lloyds Banking Group, which decided in February to close its retail operations in Ireland and whose Bank of Scotland (Ireland) and Halifax units will not take part in NAMA, said yesterday that Irish impairments were past their peak.

The group's finance director said he was less pessimistic about Ireland and that the first quarter of the year was "very encouraging".