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UPDATE 3-Alstom and Siemens rail deal stirs French political passions

* Siemens set to opt for Alstom rail deal

* Signs of political backlash in France

* Alstom and Siemens' shares: http://reut.rs/2y3hDbK (Adds further background and detail, Siemens CEO comment)

MUNICH/PARIS, Sept 26 (Reuters) - Siemens and Alstom are expected to announce a deal merging their rail operations on Tuesday, a Franco-German industrial breakthrough for President Emmanuel Macron but a move already riling opposition politicians.

Macron's centrist government has said it supports efforts to strengthen French industry through partnerships with German firms as long as jobs are safeguarded. The French state owns around 20 percent of Alstom.

Siemens is expected to announce the rail deal with Alstom on Tuesday rather than pursuing an alternative with Canada's Bombardier, two sources familiar with the matter told Reuters.

The agreement is likely to see Siemens Mobility merged into Alstom, in which Siemens would hold 50 percent plus one share, while the chief executive would be Alstom's current boss Henri-Poupart Lafarge.

Major train makers in Europe are under increasing pressure to combine their businesses as much-larger Chinese state-backed rival CRRC embarks on a global expansion.

Siemens Chief Executive Joe Kaeser said he believed the scale of CRRC left little room for regulators to oppose a deal.

"It always depends, but the facts are that there is a dominant player," he told Reuters in an interview in New York.

Siemens and Alstom are strong in high-speed intercity trains with their ICE and TGV models. Siemens is also the leader in signalling technology, while Bombardier - whose transportation headquarters are in Berlin - is stronger in commuter and light-rail trains.

Siemens stands to gain control of Alstom's main business, since all of Alstom's divisions deal with the railways and transportation industries.

A special dividend would even out the value of Siemens and Alstom, which has too much cash on its balance sheet, to smooth the intended 50-50 joint venture, one of the sources said.

"Will there be a special dividend? Yes," said the second person.

Siemens' mobility division reported operating profit of 678 million euros ($800 million) in its last financial year, a margin of 8.7 percent of sales and a 15 percent increase on the prior year.

Alstom posted adjusted EBIT (earnings before interest and tax) of 421 million euros in its most recent annual earnings, a margin of 5.8 percent and also a 15 percent rise.

SIGNS OF BACKLASH

While the French government has made comments backing the deal, several opposition politicians and French trade union activists expressed concerns.

Their worries centre on France losing control of its TGV high-speed train a symbol of national pride that has highlighted French engineering skill and possible job losses.

French right-wing politician Nicolas Dupont-Aignan criticised the likely deal on Tuesday as being more favourable to Germany than France, as did far-right politician Nicolas Bay, the National Front's secretary general, who said on Twitter that it could result in the "eradication of French industry".

Eric Woerth, a member of the right-wing Republicans' party, voiced similar views on his Twitter account.

"Is this now the end of Alstom? Will TGV become German? Why does the government accept such an imbalance?"

Last week, the French government's spokesman said France was not worried about an Alstom-Siemens tie-up provided that jobs were protected. One source said France had no concerns over any anti-trust issues emanating from it.

A branch of the CFDT trade union representing Alstom workers wrote on Twitter: "Macron abandoned Alstom to GE and hes now abandoning them to Siemens." Macron served as economy minister for two years from August 2014.

A tie-up between the two companies - aimed at creating a European champion in the railway sector similar to Airbus in aviation - would represent a reconciliation of sorts between Siemens and Alstom.

Alstom snubbed the German company in 2014 to sell its energy division to General Electric in a deal that also saw Paris take a 20 percent stake in Alstom, under a temporary agreement with construction group Bouygues.

Analysts at Exane BNP Paribas raised their rating on Alstom to "neutral" from "underweight" noting a deal offered better growth prospects than remaining a standalone company.

"We suggest that, if they participate, value creation would be limited for Siemens but material for Alstom," the Exane BNP Paribas analysts wrote.

"Aside from the M&A (mergers and acquisition) angle, we believe that commercially, this year will be relatively muted for Alstom. With no large contracts in sight, pressure on free cash flow should intensify due to lack of downpayments received." ($1 = 0.8479 euros) (Reporting by Alexander Huebner and Cyril Altmeyer; Additional reporting by Georgina Prodhan, Sudip Kar-Gupta, Maya Nikolaeva and Alwyn Scott; Editing by Keith Weir)