* Lloyds first bailed out UK bank to end state control
* Final share sale to be announced Wednesday morning
* Disposal comes after 2008 bailout led to state holding (Adds details)
By Andrew MacAskill and Lawrence White
LONDON, May 16 (Reuters) - Britain is set to sell its remaining stake in Lloyds Banking Group on Wednesday, making the lender the first to re-emerge from British state ownership in a symbolic step for the country's recovering banking sector.
The sale will draw a line under one of the largest bailouts from the 2007-2009 global financial crisis. This involved Lloyds, Britain's biggest retail lender, being rescued after an ill-fated government-brokered takeover of rival HBOS.
The takeover of HBOS in 2008 caused Lloyds to suffer more than 25 billion pounds in losses and the bank's subsequent rescue cost the British government more than 20 billion pounds ($26 billion) and left it with a 43 percent state shareholding.
This holding has gradually been sold back into the market over and now represents less than 1 percent of Lloyds shares. About half of the 137 billion pounds of direct cash injected into Britain's five bailed-out banks has so far been recovered.
Britain will make at least a 500 million pound profit from its bailout of Lloyds, the bank's chief executive Antonio Horta-Osorio said last week.
Lloyds itself is set to announce the sale by UK Financial Investments (UKFI), which manages the government's holdings in banks it has rescued, on Wednesday, sources told Reuters on Tuesday.
UKFI and Lloyds declined to comment.
Lloyds has overhauled the way it is run since its bailout and a series of high-profile scandals, scaling back its global footprint and reducing its reliance on short-term funding.
The sale ends a lengthy, and at times politicised, government disposal of its stake that underscores Britain's banking industry's slow recovery from the deepest financial crisis since the Great Depression.
British lenders' long road back to public ownership contrasts with other countries such as the United States, where lenders such as JPMorgan, Bank of America and Citigroup repaid the government by the end of 2009.
In Switzerland, UBS bought back a fund set up by the Swiss National Bank to purge it of its toxic assets in 2013.
Analysts said the sale of Britain's banks has taken longer because the scale of bad debts were higher than first anticipated and because the government interfered more with the running of the banks, including setting lending targets and what lines of business to exit.
Lloyds' successful exit was only possible because Britain's finance minister Philip Hammond sanctioned the recent sales at a loss because the government had made profits from earlier transactions when the share price was higher.
The bank's executives said they are looking forward to the milestone, but are mindful of appearing celebratory given public scepticism after the bank came so close to collapse.
"Everyone who works for the Group is conscious of the enormous debt that we owe to taxpayers for the financial support we received following the financial crisis," Lloyds Chairman Norman Blackwell said at its annual general meeting last week. ($1 = 0.7744 pounds) (Editing by Kirstin Ridley and Alexander Smith)