Markets will breathe a sigh of relief as beleaguered Italian bank UniCredit completes its 7.5 billion euro $9.7 billion (6.1 billion pounds) rights issue on Friday, but few expect it to prompt a flurry of share sale activity from other lenders.

Some 31 European banks have been told to fill a 115 billion euro collective hole in their balance sheets by the end of June as part of moves to tackle the continent's sovereign debt crisis.

But most are finding ways to boost their capital buffers without issuing new shares.

The fact UniCredit gets done is obviously a positive ... but I'm not sure it necessarily swings the needle in terms of other banks thinking of coming to market, said one equity capital markets (ECM) banker. It is still a last resort.

UniCredit's offering, keenly watched as a litmus test of investor appetite to support European banks, got off to a rocky start, with its shares dropping as much as 47 percent in the four days after the 2-for-1 issue was announced.

Retail demand was stronger than expected, a source close to the deal said, with good interest coming from U.S. investors.

The sale also received a boost from a plan by Abu Dhabi's investment vehicle Aabar to raise its stake in the bank to 6.5 percent.

The bank's stock is now at around 3.82 euros, well above the 1.943 euro offer price and sources close to the deal expect take-up, due to be announced by Monday, to be above 95 percent.

Although the cash call will put its core Tier 1 capital adequacy ratio above the 9 percent of risk-adjusted assets required by the European Banking Authority, UniCredit remains vulnerable to the country's sovereign debt woes, analysts say.

A source close to Italy's largest bank by assets said it had readied a 25 billion euro Italian covered bond programme which it planned to use to boost collateral available for refinancing operations, while on Wednesday it announced plans to buy back up to 3 billion euros of hybrid debt, adding to efforts aimed at strengthening its capital base.

UNDERWHELMING

UniCredit failing would have meant the door was shut (for other banks). But the door is still open, the question is who, how much and how, said a second ECM banker.

Germany's Commerzbank , which had been among those seen as most likely to issue new shares, has instead set out a range of other steps to boost its core capital.

Bankers highlight Deutsche Bank along with France's BNP Paribas and Societe Generale as those which may be both willing and able to get a share sale done.

Analysts at Mediobanca, one of the top advisers on UniCredit's rights issue, said the French banks should consider a rights issue as a less costly alternative to deleveraging.

(The) UniCredit rights issue shows that the lack of private investors' appetite is no longer a good reason for French banks to ignore such an option, they said in a note.

But investor appetite remains limited.

How do I rate the recapitalisation efforts of European banking sector so far? A bit underwhelming I would suggest, said Stephen Adams, head of UK equities at Kames Capital, confirming his team's relative underweight to financials.

I expect a lot of rights issues over the short to medium term ... Would I expect investors to support them? I think here and now probably not, he added.

EARLY BIRDS

Investors are weary of pumping yet more money into European banks and face heavy dilution. UniCredit's offering will dilute 2012 earnings per share by around 65 percent, according to analyst estimates.

While Adams predicts more rights issues by banks, he says investors will be very selective about the banks they back unless there is a significant rotation in asset allocation, out of cash and into equities.

We have the classic situation whereby the early birds would be supported and then you would have that drag because of the sheer weight of requirement that has to come out, he said.

Smaller lenders are more likely to struggle to come to market, bankers said, as new investors are steering clear of the periphery and banks will be less keen to underwrite an offering.

But they do not rule out pursuing alternative structures.

We have seen before major shareholders underwriting larger than their weight in the company, said the second ECM banker.

UniCredit's smaller Italian peers Banca Monte dei Paschi , Banco Popolare and UBI Banca are still striving to avoid cash calls.

People will still look at their stock price and say 'I need to be very sure that I need to do it and want to do it and need to make sure that my shareholders, especially the large ones, are in the right place before I go ahead', said the banker. ($1 = 0.7708 euros)

(Additional reporting by Sinead Cruise in London and Silvia Aloisi in Milan; Editing by David Cowell)