UPDATE 1-Czech CEZ drops on state sale talk

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PRAGUE, Sept 4 (Reuters) - Shares in power firm CEZ , the largest listed company in central Europe, dropped by 2 percent in a rising market on Tuesday after records showed the government had begun reducing its holding.

Records at the Prague Securities Centre (SCP) showed the state holding of the company, worth $31 billion on Tuesday, has dipped gradually by 0.17 percentage points, to 67.44 percent.

The shares stood 2.02 percent lower at 1,067 crowns by 1316 GMT, underperforming the Prague PX index which was 0.39 percent higher. Eight out of the top 11 Prague stocks gained ground.

"It is speculation on the sale of the state stake," said one Prague broker.

"I certainly think that the sale has begun," he said, adding that there has been solid activity in CEZ stock in the past days.

Another trader said there has been a strong seller seen on the offer below 1,100 crowns in the past days but he did not know who the seller was.

The government has approved the sale of a 7 percent stake to raise 31 billion crowns ($1.53 billion) for infrastructure projects. To raise that amount, it would need to sell about 5 percent at Tuesday's prices.

The Finance Ministry refused to comment on the data and on the sale process in general.