Changshu Rural Commercial Bank, a mid-sized city lender in eastern China, plans to raise about 5 billion yuan ($674 million) in a domestic initial public offering in 2008, sources close to the situation said on Wednesday.

The bank, based in Changshu city near Shanghai, had recently hired China Securities Co Ltd, which is controlled by China's top brokerage CITIC Securities, to advise on the planned IPO, the sources said.

Changshu Bank's board had also recently approved a plan to sell a 10 percent stake to Shanghai-based Bank of Communications ahead of the IPO, they said.

After the deal, which is subject to regulatory approval, Bank of Communications would become the single largest shareholder in Changshu Bank, the sources said.

In August, Bank of Communications announced it had agreed to pay no more than 380 million yuan for a 10 percent stake in Changshu Bank in a private placement of shares, and Bank of Communications' board members had approved the plan.

HSBC Holdings Plc holds a roughly 19 percent stake in Bank of Communications, China's fifth-largest bank.

Officials at China Securities declined to comment, while Changshu Bank could not immediately be reached for comment.

A Bank of Communications spokeswoman declined to comment on a possible IPO by Changshu Bank but confirmed it was interested in buying a 10 percent stake in the smaller rival.