Swiss bank UBS AG is confident the 287 million pound ($560 million) rights issue it is underwriting for British mortgage lender Paragon will be successful, a source close to the bank said on Monday.

Paragon said last month it aimed to raise the funds to stay afloat by selling shares to investors at a steep discount -- making it the first UK lender to tap investors for cash as a result of credit market turmoil.

UBS is upbeat on the rights issue given the strong support of Paragon's top shareholders, the source told Reuters.

UBS has confirmed it is underwriting the issue but declined to comment further.

Monday is the last day investors can apply to buy new Paragon shares.

A spokesman for Paragon said: We've had strong support from all of our major shareholders.

If the rights issue is undersubscribed, UBS may have to buy at least some of the Paragon stock but the maximum liability of $560 million pales in comparison to the $18 billion the bank took in charges in 2007 on its subprime loan exposure and the billions more that analysts have said it could still write off. (Reporting by Olesya Dmitracova; Editing by Erica Billingham)