* VietinBank shares fall maximum allowed on debut
* Still above December's IPO price but may fall further (Updates with market close, analyst's comment)
By Ho Binh Minh
HANOI, July 16 (Reuters) - Shares in VietinBank CTG.HM, Vietnam's fourth-largest lender by assets, fell the maximum allowed 20 percent from the starting level set by the bank on their stock market debut on Thursday.
However, the shares in the Hanoi-based bank were still double the average price of 20,265 dong at in its initial public offering (IPO) last December, and above the most recent prices on the unofficial and unregulated grey market.
The shares opened at 44,000 dong on the Ho Chi Minh Stock Exchange and closed down 19.8 percent at 40,100 dong after touching the floor of 40,000 dong. That compares with the starting price of 50,000 dong set by the bank.
Dealers said the bank had set the opening price too high.
"The drop is fortunate for the market, because even at 40,000 dong per share the stock is overpriced," a trader at Baoviet Securities in Hanoi said.
The overall market was firm, with the benchmark VN Index .VNI closing 1.5 percent up at 433.47 points. It has risen 37.3 percent this year.
"The index should have risen more but VietinBank shares put a brake on it," said Tran Ngoc Tu, an independent market analyst.
"VietinBank shares will fall further, back to the IPO level if there is no good news," Tu said. "The bank's competitiveness is weak. It still relies on the state."
The state owned a dominant 89.23 percent stake as of July 3, its prospectus said. It listed 121.21 million shares on Thursday, 10.77 percent of its total.
The bank has said it would cut state ownership to 70 percent next year and sell 10 percent to strategic foreign investors.
It raised $64 million by selling a 4 percent stake in the IPO on Dec. 26. [ID:nHAN412752]
Companies in Vietnam often have their IPOs some time before they make their stock market debut.
They are then allowed to set the price at which the shares are first listed, and the stock is allowed to move 20 percent up or down that day, wider than the normal daily trading band of 5 percent.
38,000-39,000 dong on the grey market in May and early June before the bank applied for a listing licence.
Shares in VietinBank, or the Vietnam Bank for Industry and Trade, have joined those of major financial companies such as Vietnam's top insurer Bao Viet Holdings BVH.HM and leading partly private lender Vietcombank VCB.HM on the market.
Vietcombank also set its starting price at 50,000 dong for its June 30 debut but its shares proved more popular and jumped by the maximum 20 percent on the day. They have since fallen back and ended at 49,800 dong on Thursday. ($1=17,804 dong) (Editing by Alan Raybould and Lincoln Feast)