By George Obulutsa

NAIROBI, Jan 10 (Reuters) - Kenya's Nairobi Stock Exchange is expected to weather the turmoil from a disputed presidential vote and its main 20-share index is seen gaining up to 40 percent by year-end, the bourse's chairman said on Thursday.

Controversy surrounding President Mwai Kibaki's re-election in a Dec. 27 vote led to violence that has killed 500 people and displaced 250,000 others and dented the stable reputation of east Africa's biggest economy.

Trade on the Nairobi Stock Exchange (NSE) was disrupted last Thursday following riots near the city centre and the main 20-share <.NSEK> index shed 7.89 percent to close the week at 5,015.50 points.

It has since recovered some of its losses, closing at 5,341.82 points on Wednesday. On Jan. 12, 2007 it touched an all time high of 6,161.46 points.

"The violence will not deter investors," NSE Chairman Jimnah Mbaru told Reuters in an interview.

"People who invest in the stock market generally invest with their eyes open. They are always conscious of the possibility of these disturbances."

Mbaru added he expected the index to rise significantly during the year.

"I expect the prices at the stock exchange to move up. By the end of the year the index will have gone up by 30 to 40 percent, compared with where we are now," he said.

Mbaru added the market would be boosted by stable interest rates, given that government borrowing in domestic markets could be below its target as a result of extra revenue earned from privatisations.

He also said government plans to offload a 25 percent stake in leading mobile phone service provider Safaricom were almost complete.

On Wednesday Finance Minister Amos Kimunya told Reuters the offer would take place in the first quarter of the year.

"We are finalising the prospectus. We are virtually finished. The only thing which will be remaining is pricing, which we will be able to do anytime from now," Mbaru said.

He added two more initial public offerings were expected to take place this year. He would not give further details.

Mbaru said in the long term he did not expect investors in the NSE would turn to other exchanges in east Africa.

"We are still the biggest in the region. I don't think Nairobi will be very much affected by some of this violence." (Editing by Sue Thomas)

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