UPDATE 2-KB Fin to raise $782 mln via share sale; doubts on M&A

* Smaller than expected issue size seen throwing M&A in doubt

* New shares to be offered at 25 pct discount

* Shares end 2.7 pct higher, ahead of announcement (Recasts with analyst comment, background; adds byline)

By Kim Yeon-hee

SEOUL, July 10 (Reuters) - South Korea's KB Financial Group (105560.KS) said on Friday it would raise a lower-than-announced 1 trillion won ($782 million) in a new share sale next month, throwing its banking expansion plan into doubt.

The parent company of South Korea's biggest bank Kookmin had said in June it was planning to raise $2 billion through a share sale, in a move seen as preparation for a bid on assets such as Korea Exchange Bank (KEB) (004940.KS) and non-banking financial companies.

Analysts said the lower fund-raising amount disclosed by KB on Friday would be inadequate to support a major acquisition.

"It's half of our expectations. The size is neither big nor small," said Lee Hyuk-jae, an analyst at IBK Securities.

"With 1 trillion won, it looks hard to buy a bank (in South Korea). We can't help but think the fund-raising is aimed at buying a non-banking company, which may include a brokerage, insurance or asset management firm."