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SHANGHAI, June 12 (Reuters) Bank of China, which raised US$11.2 billion in a Hong Kong share sale last month, on Monday launched China's biggest domestic IPO, saying it would list on the Shanghai Stock Exchange before July 5.

China's top foreign exchange lender said it was talking to potential investors to decide on the domestic offer price of its shares. It aims to sell up to 10 billion A-shares, raising as much as 20 billion yuan ($2.5 billion).

China's previous biggest initial public offer was a $1.5 billion offer by refiner Sinopec Corp. in 2001.

Bank of China is likely to price its domestic A-shares at slightly more than 3 yuan, or around 20 times 2005 earnings per share, according to four analysts polled by Reuters.

That level would be close to the HK$2.95 per share listing for the bank's H-shares in Hong Kong earlier this month in the world's fourth-largest IPO. Since then, Bank of China H-shares have jumped more than 14 percent to HK$3.375.

''Domestic investors hold a strong view about the prospects for Bank of China, so its pricing should be higher than the PE ratio of major mainland-listed banks,'' said industry analyst Liu Xiaochang at Huatai Securities.

The three largest banks listed in Shanghai, China Merchants Bank Co. Ltd., Pudong Development Bank and Minsheng Banking Corp. , now trade at roughly 19, 14 and 11 times their historical earnings.

IMPORTANT SIGNAL Bank of China's Shanghai listing is an important signal for domestic markets because until this year, most of China's biggest companies chose to list in Hong Kong or overseas to secure easy access to foreign capital.

Cheered by a recovery on domestic stock markets, China's authorities now want companies to list at home and give local investors a chance to buy into the country's best performers for the first time.

''Any quality companies, if they have not listed, will be listed -- if they have listed overseas, (they) will come back home. This is our country's strategic goal,'' the Shanghai Securities News quoted an unidentified senior regulator as saying.

Bank of China's Shanghai listing will also be a step in Beijing's drive to reform the country's banking system as it prepares to open its market wider to global players late this year under its World Trade Organisation commitments.

''Listing major lenders both at home and abroad will put key lenders under the supervision of the public in both markets,'' said China Securities analyst She Minghua. ''It will have a profound impact on China's financial system.'' Industrial and Commercial Bank of China, the country's biggest lender, is considering a $12 billion Hong Kong listing by the end of this year and could also opt later for a domestic offer, its President Yang Kaisheng said in April.

In an initial prospectus, Bank of China said 20 percent of the domestic offer would be placed with 14 domestic strategic investors, including top steel maker, Baosteel.

Another 32 percent will be open to other institutional investors, with the rest going to retail investors. The shares will be open for retail subscription from June 23, while institutional investors can subscribe on June 19 and 20.

The strategic investors will be required to hold the shares for at least 18 months, while the lock-up period for other institutional investors will be 3-6 months.

In a statement, Bank of China forecast 2006 profit of at least 32.27 billion yuan under Chinese accounting standards, up 17 percent on last year's 27.49 billion yuan.

CITIC Securities, Guotai Junan Securities and Galaxy Securities will underwrite the domestic offer.

($1=8.0089 yuan) REUTERS DKS SSC1147