BOSTON/MILAN - State Street Corp (STT.N), one of the world's largest money managers for institutions, is buying the securities services arm of Italy's biggest retail bank to help expand its footprint abroad.

Boston-based State Street said it would pay $1.87 billion cash for the securities services business of Torino-based Intesa Sanpaolo (ISP.MI). It will also inject $800 million in capital into the unit at the deal's closing.

State Street shares climbed 2.9 percent to $43.49 in morning trading on the New York Stock Exchange.

The deal, rumored for days and announced on Tuesday, is expected to close in the 2010 second quarter. It will deliver roughly $16 billion in cash deposits to State Street and help boost earnings in fiscal 2010, the company said. The Intesa unit has about 555 employees.

It is the second acquisition announced by State Street this month and brings the company a step closer to realizing its long-held goal of bulking up as a record keeper in Europe and Asia.

State Street has long said it wants to earn half of its revenue abroad. The Intesa deal will help raise the company's non-U.S. revenue to 38 percent, State Street executives told analysts on a conference call.

In early December State Street announced plans to buy Mourant International Finance Administration to become the biggest service provider for alternative assets, including hedge funds.

With $1.7 trillion in assets under management, State Street already ranks as one of the world's three largest asset managers. But its recordkeeping business -- the company has $17.9 trillion in assets under custody and administration -- is significantly larger and earmarked to grow even more.

Recordkeeping may not be a glamorous business, but it is lucrative and is essential for anyone who has ever bought or sold a stock or bond. State Street earned $833 million in servicing fee revenue in the third quarter.

State Street executives said they hope to retain 90 percent or more of the Intesa unit's customers and sell them other State Street services.

The deal comes less than six months after State Street CEO Ron Logue told Reuters that one of his top priorities was to acquire foreign servicing business, noting that there were six to eight businesses in Europe that might be attractive.

It matches right up with what our strategic intentions are, Logue said on the Tuesday conference call.

Seven years ago, State Street paid $1.5 billion to buy the securities services business of German rival Deutsche Bank.

For Intesa, the deal will boost the bank's capital ratios, giving it a gross capital gain of about 740 million euros and a positive impact of 0.37 percentage point in its Core Tier 1 capital ratio, which was 7.2 percent at the end of September.

Intesa's management and supervisory boards cleared the sale last week, leaving it to CEO Corrado Passera to finalize the deal.

The activities being sold generate about 130 million euros in net profit and revenue of 350 million euros a year, Intesa said.

The operation was expected and the details are in line with reports ... They have announced asset sales of 11-12 billion euros and this is only the start. In the first months of 2010 there could be the sale of Fideuram, a Milan-based analyst said.

In relative terms, it is more important for State Street, the analyst added.

Intesa shares were up 1.56 percent to 3.09 euros.

($1 = 0.6978 euro)

(Reporting by Milan newsroom and Svea Herbst-Bayliss in Boston; Editing by Rupert Winchester, Robert MacMillan and John Wallace)