MILAN - State Street has agreed to buy the securities services activities of Intesa Sanpaolo for about 1.75 billion euros ($2.50 billion), boosting the Italian bank's key capital ratio by near a fifth of its target.

Intesa Sanpaolo, Italy's largest bank, will book a gross capital gain of about 740 million euros when the deal is finalized and see a positive impact of 37 basis points on its Core Tier 1 capital ratio, it said on Tuesday.

It has targeted a 200 basis points boost to the ratio from up to 15 billion euros of non-core asset sales, and still to come is the sale or listing of its Fideuram asset manager.

At the end of September, Intesa Sanpaolo's Core Tier 1 was 7.2 percent.

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 analyst said.

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

State Street shares quoted in Frankfurt were indicated up 1.63 percent, while Intesa Sanpaolo shares had gained 1.15 percent as the DJ Stoxx index of banking stocks was up 0.57 percent.

The sale had already been cleared last week by Intesa's management and supervisory boards.

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

(Reporting by Nigel Tutt; Editing by Rupert Winchester)

($1 = 0.6978 euro)