Russia's Yandex is set to complete the biggest internet IPO since Google, as investors wary of much-hyped social networks look instead for exposure to the fast-growing online advertising market.

Yandex has 65 percent of Russia's online search market, pushing world leader Google into a distant second place in the emerging market with just over 20 percent. Its order book -- officially due to close on Monday -- is already oversubscribed, sources say.

Yandex will raise $1.3 billion from its Nasdaq IPO if it prices new and existing shares at the top of their range and the banks exercise an over-allotment option. That would make it the biggest IPO by an internet firm since Google raised $1.67 billion in 2004.

Internet stocks have become hot property again of late, as demonstrated by a rush of interest in internet investment company Mail.ru -- and its stake in Facebook -- and U.S. corporate social networking firm LinkedIn.

However the former's blockbuster $1 billion London flotation last November has since been overshadowed by a share price decline that reflects growing concern over its valuation and a recent share sale by its legacy owners.

LinkedIn priced its IPO at the top of an increased price range on Wednesday to raise just over $350 million, but fund managers said investors are starting to question growth prospects and hence valuations of social networking sites.

A successful play for LinkedIn has shown investor interest in proven online leaders. (But) I don't think we yet understand how companies can capitalize on social networking. Online advertising is easier to understand, said Dimitri Kryukov, Chief Investment Officer at Moscow fund manager Verno Capital.

A Moscow fund manager who has applied for Yandex shares and declined to be named said Mail.ru was more than three times overvalued, prompting him to short the stock.

He pointed out that multiples paid recently by Microsoft for web telephone group Skype -- another online play -- were prompting investors to look again at the likes of Mail.ru.

Yandex differs from both LinkedIn and Mail.ru in that it generates 97 percent of revenue from online advertising.

Advertisers have increasingly been turning away from traditional print and TV space since the financial crisis as media consumers spend more and more time online.

Internet advertising is expected to contribute 37 percent of global advertising growth in 2011 and is on track to overtake newspaper spending next year, according to media consultancy Group M, a subsidiary of global advertising giant WPP.

Uralsib analyst Konstantin Chernyshev said Yandex could offer clear exposure to the particularly fast-growing Russian online advertising market, which he expects will grow by an annual 27 percent during 2011-15.

By comparison, he said, Mail.ru looked more like a holding company.

Verno's Kryukov said Yandex could eventually become a takeover target for Google if the Californian giant struggles to grow market share in Russia.

If I were Google and looking to grow my Russian presence, that would be one of the options, he said, adding that he intended to buy shares in Yandex.

(Editing by Sophie Walker)

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