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UK says last minute price hike would have risked Royal Mail sale

Rain drops fall on a Royal Mail van outside it's Bethnal Green sorting office in east London, September 12, 2013. REUTERS/Paul Hackett

LONDON (Reuters) - Britain's sale of the Royal Mail (RMG.L) postal service, its biggest privatization in decades, would have been put at "considerable risk" if it had tried to raise the price at the last minute, ministers said on Wednesday.

The selloff of Royal Mail has grabbed headlines in 2013, with unions and opposition lawmakers heavily criticizing the government after shares in the firm rocketed by as much as 80 percent above the October 330 pence offer price.

"Had we have sought to push the price range higher we would have lost a significant number of the long term investors who we wished to attract into the company," Business Secretary Vince Cable told a parliamentary select committee on Wednesday.

"We did go at the time of the analysis to the top end of the range but if we'd sought to re-open that whole issue there would have been considerable risks and a very large downside."

Shares in Royal Mail, which was valued at 3.3 billion pounds at the time of the share sale, were up 5 percent to 559 pence at 1035 GMT, valuing it at 5.6 billion pounds.

Earlier on Wednesday the firm gave a strong trading update, with demand for parcels almost doubling first half operating profit.

Last week Goldman Sachs (GS) and UBS (UBSN.VX), the banks which led the sale of Britain's 60 percent stake in Royal Mail, said the firm could not have been sold at its current higher price.

Those banks, however, had advised the government in the days before the sale that it could get as much as 20p per share above the 330p offer price, but decided against upping the range due to the looming threat of industrial action by postal workers and the risk of a U.S. debt default.

(Reporting by Neil Maidment and William James; editing by Kate Holton)