Spanish bank Santander said on Tuesday it would seek to raise up to 3.4 billion euros (2.7 billion pounds) through the stock market listing of a quarter of its Mexican unit as it looks to boost capital levels and weather a grinding recession at home.

The euro zone's biggest bank said it would list 24.9 percent of Grupo Financiero Santander Mexico in what could be Mexico's biggest initial public offering ever, valuing the unit at up to 13.7 billion euros.

"We aim to have our most important subsidiaries listed within five years," Chairman Emilio Botin said in a statement.

The pricing of the offer is between 29 and 33.5 Mexican pesos ($2.20-$2.54) per share, in line with analysts' estimates.

The placing of shares starts on Tuesday and the shares are expected to start trading in Mexico and New York around September 26, the bank said.

The Mexican unit will join Santander's Brazilian and Chilean Latin American subsidiaries on the stock exchange. The lender has yet to list its Argentine and UK businesses. Mexico accounts for around 7 percent of Santander's profit.

The Spanish government is requiring Santander, alongside other Spanish banks, to write down losses on bad real estate investments as the country prepares for a European bailout of its banks.

Santander's first-half net profit halved after it made provisions for losses related to Spanish real estate, it said in July.

Santander, whose Latin American operations make up half the group's profits, will not be one of the banks receiving international aid.

The listing of the Mexican unit will boost Santander's core capital ratio by around half a percentage point, the group said.

(Reporting By Sonya Dowsett; editing by Sarah Morris and David Cowell)