UPDATE 1-Thai lender Thanachart had talks on buying ING's TMB Bank stake-source

* ING bought the stake in 2007

* Thai political unrest has slowed down negotiations

* TMB shares up 1.8 pct

(Adds share reaction, ING's previous sale attempts)

By Denny Thomas

HONG KONG, Feb 6 (Reuters) - Thai lender Thanachart Bank has held discussions with ING Groep ING.AS about buying the Dutch financial services company's 31 percent stake in TMB Bank Pcl

TMB.BK , although the talks are no longer continuing, a person familiar with the matter said.

The talks come after ING failed to interest foreign banks in its TMB stake last year. A sale to a domestic lender is likely to meet fewer regulatory obstacles in a country where foreign ownership above 49 percent requires government approval, people familiar with the process have said.

ING's 31 percent holding in Thailand's seventh-largest lender is valued at about $942 million based on Wednesday's closing price. The European firm has been exiting its non-core businesses as part of a wider asset sale programme to pay down the state aid it received during the global financial crisis.

Thanachart Bank, which is 49 percent owned by Canada's Bank of Nova Scotia BNS.TO , has been interested in acquiring the stake for some time but Thailand's political stalemate has slowed negotiations, the person added.

Thai protesters have been trying to topple Prime Minister Yingluck Shinawatra since November, prompting the government to announce a state of emergency ahead of Sunday's vote that was boycotted by the main opposition party.

On Wednesday, Thailand's central bank warned of "substantially increased" risk to economic growth after the disrupted general election did nothing to restore stability.

For detailed story package on Thai unrest: News Search ID:nL3N0L81U3 .

A Singapore-based ING spokesman declined comment, while Thanachart Bank was not immediately available to comment.

In early Thursday trade, TMB Bank shares were up 1.8 percent, while the benchmark Thai index .SETI was 0.5 percent higher.

Differences over price and lack of control thwarted ING's previous attempts to sell the TMB Bank stake, sources previously told Reuters. Complicating matters, Thailand's finance ministry holds 26.1 percent of TMB having bailed the bank out after Australia and New Zealand Banking Group pulled out of a deal in 2003 to buy a stake.

While a buyer of ING's stake would prefer to acquire the government stake to get eventual control of TMB, it was unclear whether the Thai government and ING had the same price expectations, people familiar with talks said.

TMB Bank, formally known as Thai Military Bank, was previously owned by the army and the son of former prime minister Thaksin Shinawatra.

The army now owns just 1.4 percent but continues to have one representative on the board.

ING bought its stake in 2007 for 460 million euros, and owns 25.2 percent directly and 5.84 percent though non-voting depository receipts. In 2012, ING forfeited its option to buy an additional 5 percent.

Finance Asia magazine first reported Thanachart's interest in buying ING's sake.

(Reporting by Denny Thomas; Additional reporting by Khettiya Jittapong and Saeed Azhar; Editing by Richard Borsuk and Stephen Coates)

((denny.thomas@thomsonreuters.com)(+852 2843 6358)(Reuters Messaging: denny.thomas.thomsonreuters.com@reuters.net))

Keywords: THANACHART ING/TMB