UPDATE 1-LKQ to buy German car parts retailer Stahlgruber in $1.77 bln deal

(Adds background on LKQ, European market, details on deal)

Dec 11 (Reuters) - Auto parts retailer LKQ Corp said on Monday it would buy German peer Stahlgruber for about 1.5 billion euros ($1.77 billion), including debt, to expand its already large European presence.

Stahlgruber will help Chicago-based LKQ compete better with rivals including U.S.-based Genuine Parts Co, which in September announced its foray into Europe with a $2 billion deal to buy Alliance Automotive Group.

Stahlgruber, which sells car replacement parts, tools and other accessories, will also complement LKQ's portfolio of vehicle engines, axles and wheels.

LKQ is the No.1 parts distributor by billings in the roughly 68-billion-euro European light vehicle aftermarket. It has expanded in the continent mainly through acquisitions and most recently bought Rhiag-Inter Auto Parts Italia S.p.A for $1.14 billion.

LKQ plans to fund the acquisition with debt offerings, its credit facility and by issuing 8.1 million new LKQ shares to Stahlgruber Otto Gruber AG, Stahlgruber's owner.

Reuters reported in September that Stahlgruber's owner had put the car parts retailer up for sale and selected bidders including LKQ.

LKQ expects Stahlgruber to have revenue of about 1.6 billion euros for 2017.

($1 = 0.8482 euros)

(Reporting by Sanjana Shivdas in Bengaluru; editing by Sai Sachin Ravikumar)