* Aviva expects to complete IPO in November
* To sell 30-40 percent stake for 1.0-1.6 bln euros -sources
* Aviva shares down 2.4 percent
(Adds fresh analyst reaction, background; updates shares)
By Myles Neligan and Daisy Ku
LONDON, Oct 5 (Reuters) - British insurer Aviva said it was on course to float part of its Dutch unit Delta Lloyd next month, in a sale that could reopen the market for European initial public offerings (IPO) after a drought of more than a year.
Britain's second-biggest insurer aims to raise 1.0 billion to 1.6 billion euros ($1.5-2.3 billion) by selling 30 to 40 percent of Delta Lloyd, two sources close the matter said on Monday.
Aviva, which announced its intention to list Delta Lloyd in August, expects to offload less than half its 92 percent stake in the business on Euronext's Amsterdam exchange in November, the company said in a statement.
Proceeds from the IPO will allow Aviva to reduce its debt and grow further, possibly through acquisitions, the company said.
A 1.6 billion euro IPO would be Europe's biggest since New World Resources' $2.5 billion float in May 2008, Thomson Reuters data showed, and the fifth-largest IPO globally this year, including Spanish bank Santander's planned spin-off of its Brazilian unit.
There has been a sharp drop in the number of companies coming to market in the United States and Europe since last year's global banking crisis, which weighed heavily on stock prices and choked off investor appetite for new share issues.
TAKEOVER TRAIL
Analysts said Aviva would use at least part of the IPO proceeds to make acquisitions, taking advantage of depressed valuations as insurers emerge from a steep economic downturn.
"The question is whether they do something in the UK or abroad," MF Global analyst Peter Eliot said. "Doing something abroad is probably more in line with their growth and diversification strategy."
Aviva Chief Executive Andrew Moss said in August that the Delta Lloyd IPO would allow the company to look at potential takeovers, and that Delta Lloyd might also buy rivals as the Benelux financial services sector undergoes a wave of consolidation.
Analysts see Delta Lloyd, the only major Dutch insurer not to have received a capital injection during last year's financial crisis, as a strong candidate to buy assets from financially weaker rivals.
The IPO will also bring more Dutch investors onto Delta Lloyd's shareholder register, potentially making takeover offers from the group more acceptable to target companies in the Netherlands than if it remained largely foreign-owned.
Doubts over Aviva's long-term ownership of Delta Lloyd have been mounting since last year, when the British insurers legal attempt to change corporate governance rules, which severely limit its control over its Dutch subsidiary, failed.
Despite owning 92 percent of Delta Lloyd, Aviva has only two seats on the company's eight-member supervisory board.
Delta Lloyd will kick-start the bookbuilding process for the IPO in the week of Oct. 19, with its market debut expected in early November, the sources said.
Bookrunners Bank of America Merrill Lynch, Goldman Sachs, J.P.Morgan and RBS are likely to share an underwriting fee of close to three percent to the deal value, the sources said.
Delta Lloyd Chief Executive Niek Hoek told Reuters last month that the IPO was pencilled in for the final quarter of 2009 or early next year.
Delta Lloyd had an embedded value -- a measure of insurance companies' worth which includes the present value of future earnings from long-term life insurance contracts -- of 4.1 billion euros at the end of June, Aviva said on Monday.
Aviva shares were down 2.4 percent at 441.8 pence by 1200 GMT, while the FTSE 100 share index was 0.1 percent higher. ($1 = 0.6879 euro = 0.6289 pound) (Additional reporting by Clara Ferreira-Marques; editing by Karen Foster)