* Etisalat sale comes after 50 pct surge in XL Axiata stock in 2012

* Block deal biggest in Indonesia since December 2010

* XL Axiata shares offered at up to 9 pct discount to Wednesday close

(Adds details on XL Axiata, share performance, comments)

By Elzio Barreto and Andjarsari Paramaditha

HONG KONG/JAKARTA, Sept 12 (Reuters) - Etisalat ETEL.AD , the United Arab Emirates' biggest telecommunications company, aims to raise up to $502 million by selling most of its stake in PT XL Axiata EXCL.JK , in Indonesia's biggest block offering since December 2010.

The sale by Etisalat, which invested $440 million in Indonesia's third-biggest phone operator nearly five years ago, has been expected for a long time as the UAE firm has failed to expand its partnership with XL Axiata's major shareholder, Axiata Group AXIA.L of Malaysia. ID:nL4E8ED5JV

The move highlights the emergence of equity capital markets in Southeast Asia, which has seen a boom in share offerings in Malaysia, Thailand and other markets. It also follows a surge of nearly 50 percent in XL Axiata shares in 2012, compared with an 8.7 percent rise in Indonesia's benchmark share index .JKSE .

"It's hard for Etisalat to expand its business if they're not the controlling shareholder like Axiata," said Jemmy Paul, head of equity fund Sucorinvest Asset Management in Jakarta. "So it's better to divest the investment at a good price."

Etisalat is offering the Axiata shares in a range of 6,100 to 6,300 rupiah ($0.66), a discount of up to 9 percent to Wednesday's close of 6,700 rupiah, a term sheet of the sale seen by Reuters showed. The offer of up to 775 million shares would put the total deal at up to 4.88 trillion rupiah.

The selldown will be Indonesia's biggest block deal since the $530 million share sale of PT Sarana Menara TOWR.JK in December 2010. Etisalat will own a 4.2 percent stake worth $253 million in XL Axiata after the sale. The company has a three month-lockup on the remaining XL Axiata shares, the terms showed.

JPMorgan JPM.N and Morgan Stanley MS.N were hired to manage the share sale. ($1 = 9586.5000 Indonesian rupiahs)

(Reporting by Elzio Barreto; Editing by Muralikumar Anantharaman and Hugh Lawson)

((elzio.barreto@thomsonreuters.com)(852)(2843-1608)(Reuters Messaging: elzio.barreto.thomsonreuters.com@reuters.net))

Keywords: ETISALAT AXIATA/