By Santosh Nadgir

BANGALORE (Reuters) - Puerto Rico's largest bank Popular Inc (BPOP.O: Quote, Profile, Research) said it will sell the loan and servicing assets of its U.S. mortgage unit worth $1.17 billion to Goldman Sachs (GS.N: Quote, Profile, Research) to improve liquidity and reduce risky assets, sending its shares up as much as 27 percent.

The transaction, expected to close in the fourth quarter, will provide more than $700 million in additional liquidity and significantly reduce its U.S. sub-prime assets, Popular, the parent of Banco Popular, said in a statement.

Popular expects a loss of about $450 million related to the transaction.

"This sale probably gets rid of most of the remaining sub-prime assets form the mainland and from their subsidiary (Popular Financial Holdings)," Joseph Gladue, analyst with B. Riley & Co, said by phone.

"We are continuing to narrow the scope of our mainland U.S. operations that are most exposed to the credit and mortgage markets, by leveraging on our core strengths in Puerto Rico," Popular Chief Executive Richard Carrion said.

Analyst Gladue said he expects the company to sell some of its banking assets also but feels it will be some time before Popular gets a fair price for them.

Both Puerto Rico and the United States have been struggling with weak economies, which have caused credit losses to rise among consumer and business borrowers.

The company operates more than 300 banking offices in Puerto Rico and 140 branches in six U.S. states, including California and Florida, which have been hit hard by the turmoil in the housing and mortgage markets.