UPDATE 3-Barclays needs no new capital after stress test

* UK regulator satisfied after conducting stress test

* Barclays faces Tuesday deadline on UK asset insurance

* iShares sale expected early next week, mulls bond buybacks

* Shares rally over 17 percent

(Adds confirmation, details, Commerzbank, updates shares)

By Steve Slater

LONDON, March 27 (Reuters) - Barclays Plc (BARC.L) said it does not need to raise any fresh capital after Britain's financial regulator subjected it to "a detailed stress test" and was satisfied the bank's balance sheet can withstand more pain.

Barclays shares extended an early rally and soared over 17 percent after its brief statement soothed fears it could need funds or have to hand the government a stake.

The bank said on Friday its capital position and resources, after exposure to the stress tests, "are expected to continue to meet the capital requirements" that the Financial Services Authority (FSA) published in January.

Reuters earlier reported the regulator was satisfied Barclays did not need extra funds after subjecting it to a stress test more severe than the recession of the early 1980s, lasting for several years, according to a person familiar with the matter.

The bank said the FSA applied "a detailed stress test to the balance sheet and profit and loss account".

By 1445 GMT Barclays shares were up 17.8 percent at 165 pence, its highest level since mid-January. The shares have more than doubled in the past three weeks, valuing Barclays at almost 14 billion pounds ($20.05 billion) ($20 billion).

Shares in Lloyds Banking Group (LLOY.L) were aided by the news, adding 6 percent.

Barclays needs to decide by Tuesday whether to join a UK government-backed scheme to insure some of its assets against future losses. It has maintained it has sufficient capital to withstand a deepening recession and will decide whether to join the scheme on economic merits.

The bank is also expected to conclude the sale of iShares, part of its asset management business, early next week.

UNIT SALE, BONDS OPTION

Barclays has faced intense scrutiny over its capital position after being accused of not writing down the value of its structured credit assets as much as rivals.

It has said its assets are of better quality, while it is also less exposed to bad corporate loans than Lloyds and Royal Bank of Scotland (RBS.L), who have been part-nationalised.

"This is likely to be seen as further evidence that the risk management at Barclays has been superior thus far in the recession," analysts at Cazenove said in a note.

Barclays' balance sheet has been stretched by the financial crisis, however, and it is looking at options to boost capital even after raising over 12 billion pounds last year, mainly from investors in the Middle East.

IShares is up for sale and a deal could come before Tuesday, people familiar with the matter have said.

Goldman Sachs (GS.N) is a potential bidder, as are Bain Capital and a consortium of Hellman & Friedman and Apax Partners [APAX.UL], sources have said.

Analysts had estimated iShares was likely to be worth about 3 billion pounds, but bidders could be willing to bid over 4 billion pounds, according to recent media reports.

Barclays' core tier 1 ratio of 6.7 percent at the end of 2008 is well below RBS and Lloyds after they joined the UK asset insurance plan, but Barclays is expected to remain profitable whereas its rivals are predicted to make further losses.

Barclays is also expected to consider joining other banks in offering to exchange low-ranked bonds for higher quality debt to boost balance sheet quality. [ID:nLQ981122]

The bank has about 20 billion pounds of Tier 2 debt instruments, and could offer to buy that back or exchange it for core Tier 1 bonds, which regulators and investors are focusing on. RBS and Lloyds have launched such offers in recent days.

A spokesman said Barclays actively manages its balance sheet and "is always alert to what's happening in the market".

Valuing risky assets remains a key issue for all banks and Germany's Commerzbank (CBKG.DE) on Friday said it had identified more than 50 billion euros ($68 billion) of toxic debt that it plans to manage separately, lifting optimism it is moving to resolve its problem loans and investments. [ID:nLR288104] ($1=.6984 Pound) (Additional reporting by Simon Meads and Victoria Howley; Editing by David Holmes and Hans Peters)