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UPDATE 1-Aleris, Zhongwang USA scrap merger after regulatory snag

(Adds details on decision to drop deal, quotes, background, removes stale stock symbol)

WASHINGTON, Nov 13 (Reuters) - Zhongwang USA, an investment firm backed by a Chinese tycoon, has called off its planned acquisition of U.S. aluminum maker Aleris Corp after failing to win U.S. government approval, the companies said on Monday.

The companies said the $2.33 billion deal was terminated by mutual agreement after the U.S. Committee on Foreign Investment in the United States, which assesses mergers to ensure they do not endanger national security, did not approve it.

Zhongwang USA said it had wanted the deal to preserve American jobs.

"The Aleris acquisition was a win-win opportunity for American workers and Zhongwang USA, particularly in Kentucky, Ohio, Michigan, and Iowa, where Zhongwangs substantial additional capital investment would increase productivity and American competitiveness while supporting in excess of 1,000 new jobs across four states, the company said in a statement.

Zhongwang USA announced its intention to buy Aleris in August 2016. The deal came under fire from lawmakers, who said Aleris produced and tested specialized alloys used by the defense industry, and its research and technology were critical to U.S. economic and national security interests.

In April, the U.S. Commerce Department opened an investigation to determine whether a flood of aluminum imports from China and elsewhere compromised U.S. national security.

Commerce Secretary Wilbur Ross said the investigation was similar to one announced this year for steel imports.

Ross said the probe was prompted by competitive pressures that unfairly traded imports were putting on the U.S. aluminum industry, causing several domestic smelters to close or halt production in recent years.

He said part of the justification for the investigation was that U.S. combat aircraft such as Lockheed Martin Corp's F-35 joint strike fighter and the Boeing Co's F/A-18 Super Hornet require high-purity aluminum that is now produced by only one smelter, Century Aluminum Co.

With the planned merger scrapped, Aleris said it would press forward with expansion plans.

"While this is not the outcome we intended, we remain committed to our growth strategy and have made great strides over the past year in expanding our capacity and developing the capabilities required to meet the future demands of our industry," said Chief Executive Officer Sean Stack. "This includes our automotive expansion project" in Lewisport, Kentucky.

Cleveland-based Aleris is owned and controlled by a group led by certain Oaktree Capital Management LP funds as well as certain funds managed by Apollo Management LP. (Reporting by Diane Bartz; Editing by Chizu Nomiyama and Lisa Von Ahn)