(Adds further details, background; refiled to add word "euro" and delete redundant word "payments" in penultimate paragraph)
* Compensation bill may not be as big as initially foreseen
* Bankia, state in talks over burden-sharing agreement
* Treasury ministry opposes any deal 'that costs taxpayers money'
* Accord expected "in next few days"
By Julien Toyer and Jesús Aguado
MADRID, Feb 2 (Reuters) - The bill for compensating small investors that bought into Spanish lender Bankia's ill-fated share sale in 2011 should not be more than 500 million euros ($570 million) and will probably be split between the state and the bank, three sources familiar with the matter said on Monday.
They said intense discussions were continuing between Bankia and its majority shareholder, the Spanish state, on how to share the burden and a deal was expected in "the next few days".
However, a spokeswoman for the treasury ministry said it "would oppose anything that would cost taxpayers money".
Last week the bank postponed publication of its 2014 results while it awaits a decision.
Bankia, created from the merger of seven regional savings banks, was floated on the stock market in July 2011 after raising some 3 billion euros, including 1.8 billion euros from the sale of shares to hundreds of thousands of the bank's individual customers.
Less than a year later the bank had to be bailed out by the government, wiping out those investments.
The lender returned to profit in 2013 but a long-running court investigation into whether the flotation prospectus misled potential investors has dogged its recovery.
According to one of the sources, those Bankia shareholders still interested in seeking compensation have already sought a total of about 100 million euros but the bill is expected to keep rising to at least 300 million euros.
The other two sources, both involved in the discussions, said the final cost was not expected to go beyond 500 million euros because many shareholders had already sold their shares.
The economy ministry, which controls Spain's bank restructuring fund FROB, and Bankia declined to comment.
While the total theoretical risk for the lender is 1.8 billion euros, the amount minority shareholders bought in the flotation, investors' association Asinver said only a small portion of investors would seek compensation.
"Many want to move on and are not keen to invest time and money in the judicial process," said Javier Flores, head of analysis at Asinver.
He estimates that the final cost could total 300 million euros. However, other bodies representing investors believe the litigation could yield up to 1 billion euros.
The range of 300 million to 500 million euros would translate into a 0.03 to 0.05 percent hit for Spain's annual public spending deficit if the bill was to be fully assumed by the state.
Bankia, which is on course to post a 1 billion-euro profit for 2014, would also be able to weather the hit financially but it would make it more difficult to complete its authorised restructuring plan in 2015 and start paying a dividend.
"All in all, a 500 million-euro charge would have a negative impact of 56 basis points in the bank's capital (solvency) ratios and may restrain the instatement of a cash dividend policy for the group in 2015," said BPI analysts in a note on Monday.
Shares in Bankia were down 4 percent on Monday. ($1 = 0.8839 euros) (Editing by Greg Mahlich)