British government cuts stake in Lloyds to below 5 percent

(Adds government return on Lloyds bailout)

LONDON, Jan 30 (Reuters) - The British government has reduced its stake in Lloyds Banking Group to just below 5 percent as it aims to return the bank to full private ownership in the next few months.

UK Financial Investments Limited (UKFI), which manages the government's stake, resumed share sales in October, having halted them for almost a year due to market turbulence.

UKFI said it had reduced its stake by about 1 percent to 4.998 percent in an announcement on Monday.

The government was left with a 43 percent stake in Lloyds after a 20.5 billion pound ($25.75 billion) taxpayer-funded bailout during the 2007-09 financial crisis.

Even (Taiwan OTC: 6436.TWO - news) though the government is now selling the shares at below the average price it paid for them it has so far received about 18.5 billion pounds back.

UKFI is selling about 1 percent of shares on average about every 3 weeks. This means at the current rate the bank should be fully returned to private ownership by around May.

The slump in Lloyds shares at the start of last year forced the government to postpone a plan to offer cut-price shares to the public. The new Conservative government has signalled that it will call off that plan entirely.

Lloyds has been trying to put its crisis-ridden past behind it. Last month the bank said it would it would spend 1.9 billion pounds buying MBNA, a UK credit card business from Bank of America, in its first major acquisition since its bailout. ($1 = 0.7962 pounds) (Reporting By Andrew MacAskill; Editing by Rachel Armstrong and Louise Heavens)