FRANKFURT (Reuters) - Drugmaker Bayer (>> Bayer AG) has sold 1.46 billion euros (1.2 billion pounds) of shares in its chemicals subsidiary Covestro (>> Covestro AG), cutting its stake to 53.3 percent as it raises cash for its takeover of seeds maker Monsanto (>> Monsanto Company).

The sale of 22 million shares, or 10.9 percent of Covestro's capital, at 66.50 euros each to institutional investors, puts the chemicals maker on track to enter Germany's blue-chip index as it boosted the amount of shares that can be openly traded.

Shares in Covestro, the maker of transparent plastics, foam chemicals and coatings ingredients that Bayer listed in October, hit a record high of 73.27 euros last week, more than three times their initial offer price of 24 euros.

The shares were down 6.9 percent at 66.2 euros at 1122 GMT on Wednesday, just below the price of the block trade that Bayer placed late the evening before.

Bayer reiterated that while it will keep a majority stake for now it still intends to sell all of its Covestro shares over the next few years.

Analysts at Kepler Cheuvreux and DZ Bank said Covestro was on track to join the DAX <.GDAXI> index of Germany's 30 largest listed companies soon.

"While the shares might react negatively initially, we are under the impression that many investors will welcome the significantly higher free float - also making Covestro a key candidate for the blue-chip DAX 30 index," Kepler Cheuvreux analyst Christian Faitz said.

The proceeds will come in handy as Bayer raises debt and equity financing for its $66 billion takeover of Monsanto, which will the biggest deal ever to be paid for in cash.

Bayer placed 4 billion euros in mandatory convertible notes in November, part of a plan to raise $19 billion worth of fresh equity capital.

Covestro shares have outperformed rivals because the company has benefited from high investment under Bayer's ownership and an increase in demand for its chemicals has translated into higher utilisation rates at its factories.

In addition, rivals in foam chemicals have suffered technical setbacks and outages, in turn boosting global prices.

($1 = 0.9486 euros)

(Writing by Ludwig Burger; editing by David Clarke)

By Alexander Hübner and Ludwig Burger

Stocks treated in this article : Monsanto Company, Bayer AG, Covestro AG