By Daisy Ku

LONDON (Reuters) - Companies worldwide have raised a record $33 billion (16.6 billion pounds) from rights issues in the first five months of 2008 as they strengthen balance sheets, but investors are showing signs of indigestion as the fund-raising race goes on.

In February, British mortgage bank Paragon raised 290 million pounds ($569 million) with relative ease in a deal underwritten by UBS.

But Bradford & Bingley (B&B), the UK's biggest buy-to-let mortgage lender, was forced to slash its rights issue price by a third on Monday.

"It's unprecedented. To me it's a real shock," said a London-based equity capital markets banker not involved in the deal. "I can only think that UBS and Citi must have threatened to walk away."

B&B and underwriters UBS and Citigroup Inc agreed to downsize the deal by 14 percent to 258 million pounds as Goldman Sachs Group Inc brought in 179 million pounds from private equity firm TPG to rescue the capital replenishing plan.

As the credit crunch continues to drive up the cost of debt, companies are turning to equity markets to raise money.

According to Thomson Reuters data, the financial sector alone has raised $22.4 billion via rights issue, or two-thirds of the total between January and May.

But investor appetite is shrinking.