Singapore's Temasek invests $900 million more in Merrill

By Kevin Lim and Saeed Azhar

SINGAPORE (Reuters) - Singapore sovereign wealth fund Temasek Holdings TEM.UL will pump an additional $900 million into Merrill Lynch MER.N as part of the debt-laden U.S. investment bank's latest $8.5 billion fund-raising effort.

Temasek said on Tuesday that Merrill will give it a rebate of $2.5 billion on its original $4.4 billion stock purchase following the U.S. firm's decision to sell new shares.

Temasek will plough that money, plus another $900 million, back into new Merrill stock, potentially increasing the state-run fund's stake in one of the best-known U.S. banks to more than 10 percent.

The fund had been facing huge paper losses on its initial investment in Merrill at $48 per share as banking stocks slid this year amid writedowns on risky debt.

The rebate, announced less than two weeks after Merrill posted a $4.9 billion second-quarter loss, effectively reduces the cost of Temasek's existing shares in the U.S. bank by more than half to $21 a share, according to Reuters calculations.

Neither Merrill nor Temasek disclosed the price at which the new Merrill shares would be offered.

Merrill shares fell 11.6 percent on Monday to $24.33. After the market close, the company said it will take a further $5.7 billion in debt-related writedowns in the third-quarter and raise $8.5 billion by selling new stock.

Sovereign wealth funds from Asia and the Middle East have become more influential in financial markets after pouring billions of dollars into Merrill and other big banks on Wall Street and Europe that were reeling from losses related to the U.S. mortgage market.