MUFG sweetens bid to $3.5 bln, wins UnionBanCal

(Updates with details, background)

TOKYO, Aug 18 (Reuters) - Mitsubishi UFJ Financial Group (MUFG) clinched a deal to take full control of California bank UnionBanCal Corp , after sweetening its bid 17 percent to $3.5 billion.

Japan's largest bank said it has raised its per share offer to $73.5 after UnionBanCal dismissed a $63 per share offer announced last week as too low. MUFG is seeking the 35 percent it does not already own in the bank.

MUFG said in a statement that UnionBanCal's board has agreed to the new terms and would recommend shareholders to accept the offer. MUFG said it would use cash on hand to fund the acquisition.

The bid represents a significant bet by MUFG, which is looking to grow beyond its softening home market and increase its presence in the United States, even as the world's largest economy stumbles through the subprime mortgage crisis.

Japanese financial firms have avoided much of the subprime meltdown, but they are saddled with slow economic growth and a declining population at home, and are increasingly aiming to boost their small market shares in the West.

The new offer by MUFG represents a 12 percent premium to UnionBanCal's closing price on Friday of $65.49. The stock surged last week after MUFG announced its intention to make it a wholly owned unit. (Reporting by David Dolan; Editing by Edwina Gibbs)