Lloyds Banking Group
Lloyds Banking Group will be 32.7% owned by the UK government after the 6% stake sale (Reuters)

Lloyds Banking Group shares took a knock in early London trading after the UK government announced it would sell 6% of its stake in the institution.

The bank's share price fell more than 2% on the London Stock Exchange following the government's announcement that it would make the stake sale at 75p a share to large investors, generating £3.2bn (€3.8bn, $5bn). Once the stake sale is complete, the UK government will still own 32.7% of Lloyds after it bailed the bank out during the financial crisis.

Analysts have broadly welcomed the news that the UK government is chipping away at its ownership of Lloyds.

"Many will see this as a symbol of the UK's financial system returning to health as institutional investors snapped up the shares on offer, an indication that the market feels far more comfortable with the UK banking sectors' prospects given the upswing we are seeing in the UK economy," said Joe Rundle, head of trading at ETX Capital.

"Lloyds itself is a leveraged play on the UK economy for investors - if you believe in the UK recovery, Lloyds is the likely long play versus the likes of riskier banks RBS and Barclays."

Investec's Ian Gordon said the government sell-off is sensible given the recent strength of Lloyds' share price.

"We regard the government's timing as impeccable, and it appears credible to suggest that it could yet be out in full by the election," he said.

Gordon added that mortgage easing schemes such as Funding for Lending and Help to Buy, both set to continue for some time, have been "distinctly positive" for Lloyds and that the tail risks, for example from mi-selling charges, are "significantly diminished".

"The simple manner in which the shares were placed will no doubt be welcomed by investors," said Jefferies analyst Jo Dickerson.

"We can only hope that the rest of the government's stake in Lloyds and RBS is disposed of in such an effective manner."

There will be no further sale of Lloyds shares by the government for 90 days, said the Treasury and UK Financial Investments (UKFI), the arm which handles state-owned shares in banks.

"We want to get the best value for the taxpayer, maximise support for the economy and restore them to private ownership," said a statement from the Treasury.

"The government will only conclude a sale if these objectives are met."