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UPDATE 2-Shanghai Electric buys stake in Italian power engineering firm

* Chinese group to pay 400 mln euros for 40 percent stake

* Adds to flurry of power sector consolidation

* Two production JVs and research centre planned in China

* Ansaldo to develop new gas turbine with Doosan

(Adds source on valuation, rationale of deal, detail on Doosan agreement)

GENOA, Italy, May 8 (Reuters) - Shanghai Electric Group has agreed to pay 400 million euros ($555 million) for 40 percent of power engineering company Ansaldo Energia, becoming the latest Chinese company to buy into Italy's fledgeling economic recovery.

The deal, announced on Thursday at a ceremony with Italian Prime Minister Matteo Renzi, will allow Ansaldo to boost sales by entering the huge Asian market and gives the Chinese access to the Italian company's technology.

Shanghai Electric, a conglomerate that also makes and distributes industrial equipment, will buy the stake in the 161- year-old producer of power plants and turbines from state-backed private equity fund Fondo Strategico Italiano (FSI), the fund said in a statement on Thursday.

In a rapidly consolidating industry, the Chinese group emerged as surprise buyer for Ansaldo, which had been courted for years by suitors including South Korea's Doosan Heavy Industries and Germany's Siemens.

TURBINE TECHNOLOGY

The deal gives China access to gas turbine technology it previously did not have, posing a possible threat to U.S. and German groups that dominate that business in Chinese, said two sources familiar with the matter. That access, however, will not be unlimited, one of the sources said.

Under the agreement, Ansaldo Energia and Shanghai Electric will set up two joint ventures in China to produce gas turbines for Asia, which represents 50 percent of the world market, as well as a research and development centre in Shanghai.

The parties started talks at the end of last year, one of the sources told Reuters, adding that the agreed price gives Ansaldo Energia an enterprise value of more than nine times core profit.

The Italian company has also signed a cooperation deal with former suitor Doosan to develop a new gas turbine for North America, Brazil, Saudi Arabia and South Korea, FSI said.

The deal adds to a flurry of consolidation in the sector, as sector players face intensifying global competition.

France's Alstom is reviewing a $16.9 billion buyout offer from U.S. group General Electric and has given Siemens until the end of May to make a rival bid.

LISTING

Genoa-based Ansaldo confirmed it plans to launch an initial public offering (IPO) in the medium term.

Its former owner Finmeccanica, which still holds 15 percent of Ansaldo, would exit the company through the IPO, FSI head Maurizio Tamagnini told reporters in Genoa.

Finmeccanica last year sold 85 percent of Ansaldo to FSI to cut debt and focus on its defence and aerospace business.

Recent tie-ups between Italian energy firms and companies in China, the world's biggest energy market, include a pact signed by utility Enel and State Grid Corporation of China in April to develop smart grid technologies.

Enel is also planning to sign an agreement with China Huaneng Group this year. China's central bank bought about 2 percent each in Eni and Enel in March.

FSI said the deal with Shanghai Electric was the largest Italian-Chinese deal so far and could represent a "major benchmark" for industrial relations between the two countries. ($1 = 0.7214 Euros)

(Additional reporting by Danilo Masoni in Milan; Editing by Lisa Jucca and David Goodman)