Government to offer a share price between 260p and 330p as City experts predict investors will generate at least a 12% return

Investors in the Royal Mail selloff stand to generate an instant return of at least 12% on their investment if trading matches current speculation on grey markets, according to City experts.

Labour has stepped up demands for the government to pull the plug on the privatisation before applications for shares close on Tuesday evening, warning that taxpayers will be shortchanged in a "bonanza for City speculators".

The government is set to offer shares at a price of between 260p and 330p, valuing the company at up to £3.3bn.

But according to City spread betting firm IG Group, demand from speculators is likely to push share prices to between 370p and 390p when stock market trading opens.

David Jones, chief market strategist at IG, which has been running a grey market for retail investors for three weeks, said: "We started quoting at £2.5bn and it's been pushed up to £3.8bn. Our price is being driven purely by our clients' activity."

He said that activity suggested prices would rise on the first day of trading to between 370p and 390p – a 12-18% profit even if the offer price were set at the maximum 330p, adding: "This looks like an instant windfall to everybody."

The offer price will be announced on Thursday at 7am. Although it is widely expected now to be at least 300p a share, a host of City analysts say even that will undervalue the Royal Mail, in what is the biggest privatisation since the selloff of the railways in the 1990s. Gert Zonneveld, managing director of stockbroker Panmure Gordon, has said he believes the true value of Royal Mail could prove to be up to £4.5bn, while stockbroker ETX Capital said exceptional demand from retail investors would drive the shares as high as 365p on the first day.

Applications for shares close at a minute to midnight on Tuesday evening. Potential investors placed orders covering all the shares on offer within hours of the sale launching last week. Stockbrokers kept offices open through the weekend to field calls from smaller private investors, with the public able to buy shares when investing £750 upwards.

Around 60% of the company will be sold off, with 10% handed to employees and the government retaining at least a 30% shareholding.

Institutional investors will be allowed to trade shares conditionally from Friday, while retail shareholders – ordinary members of the public – can potentially sell shares as soon as they are listed on the stock market on 15 October. Shares issued to employees are locked in for three years.

The shadow business secretary, Chuka Umunna, said: "It is not too late for the govemnment to pull the plug on this privatisation which appears to be about to deliver a huge bonanza for City speculators at the same time that it is massively shortchanging taxpayers."

Labour believes that the Royal Mail's property assets alone, including prime central London sites now regarded as surplus to requiremets, could be sold for billions.

The Communication Workers Union says the overwhelming majority of postal workers oppose the deal. A ballot for strike action may lead to a walkout later this month.

Meanwhile, a Royal Mail spokesman said that reports that the newly privatised firm would pay no corporation tax for a decade were "entirely speculative".