UPDATE 1-Spain says convinced will find investors for bad bank

By Ana Nicolaci da Costa and John Stonestreet

LONDON Oct 4 Spain's Economy Minister said on Thursday he was certain the country would find interest from the private sector for the 'bad bank' it is setting up to park billions of euros in soured real estate assets.

He spoke after face-to-face meetings in London with leading funds, which he updated on Spain's progress in managing its economy without making a direct plea for investments.

"The price that we are going to apply (to the assets in the bad bank) will be extremely cautious and we are convinced that we will be able to bring private investors (in)," Luis de Guindos told an audience at the London School of Economics.

Spain is seeking foreign capital for the asset management vehicle, which it is setting up to meet the conditions of a programme of up to 100 billion euros in aid for its troubled financial sector.

It will take on soured property assets from Spanish banks that were left with an estimated 184 billion euros in bad loans and repossessed property after a building bubble burst in 2007.

One of the sources who met with the minister early on Thursday said it was a "low key event" where much of the focus was on what Spain was doing with its economy and banks and the issue of whether it would apply for an EU bailout.

"The thing that is on their mind is to apply for the ESM (European rescue fund) assistance and the implications for that," said the source.

De Guindos told the LSE audience that Spain's economic recovery was tied irrevocably to the euro zone.

"For Spain, in order to have a recovery, it is important to dispel all the doubts about the future of the euro," he said, responding to questions following a lecture.

With the banking rescue under way, Madrid is now under pressure to apply for aid from the rescue fund to trigger action from the European Central Bank, which will buy its bonds to bring down its borrowing costs.

Euro zone officials have welcomed a tight 2013 budget but that was announced amid increasingly violent protests in Madrid, by Spaniards tired of growth-stifling austerity and the European Unions highest unemployment rate of close to 25 percent.

In a sign of the deep-seated discontent, the conference at the LSE was interrupted by Spanish protesters shouting "you don't represent us" and holding up a sign saying "Spain for sale."

"This is an embarrassment. He comes to talk about markets and numbers, when there are people in Spain who don't have enough to eat," said 30-year-old teacher Laura, one of the protesters who has lived in London for seven years. She declined to give her last name.

The Spanish state wants to own less than half of the bad bank, to keep its performance from weighing on public accounts.

Investors are still waiting to see whether assets that are transferred to the entity are priced low enough to guarantee juicy returns. Spanish property prices are expected to continue to fall at least through 2015.

"He has studied the Irish case. Execution is important," said the source. Ireland's asset management company became profitable in its second year after being set up.

"The key thing is going to be the transfer price of the assets." (Additional Reporting by Chris Vellacott; Editing by Fiona Ortiz)