UPDATE 1-State owners sell Germany's HSH Nordbank to buyout groups

* Purchase price of roughly 1 billion euros

* Existing 10 bln euros guarantee scheme will be ended

* Total losses for state owners 10.8-14 bln eur (Adds details, background)

HAMBURG, Feb 28 (Reuters) - Germany's HSH Nordbank, once the world's largest ship financier, is being sold to private equity firms as it emerges from crippling writedowns and state bailouts triggered by the deepest sector slump on record.

The bank's regional government owners said on Wednesday they had sealed the sale to a consortium of buyout groups Cerberus and J.C. Flowers, with investors GoldenTree, Centaurus Capital and Austrian bank BAWAG also taking stakes.

The purchase price for 94.9 percent of HSH was roughly 1 billion euros ($1.2 billion), they said.

The buyers had been in exclusive talks since mid-January with HSH's owners, the German regional states of Schleswig-Holstein and Hamburg as well as regional savings banks.

HSH became the world's largest lender to the shipping industry in the 2000s but required two state rescues after a deep sector slump caused by the global financial crisis and overcapacity among shipping firms.

Hamburg and Schleswig-Holstein bailed out HSH with 3 billion euros in equity and a 10 billion euro guarantee in 2009. After a reduction of the guarantee to 7 billion in 2011, HSH asked for it to be returned to the original level in 2013.

The guarantee will now be ended and the purchase price may be reduced if is not fully drawn, the sellers said, adding no risks would remain with them.

The states added total losses they incurred in their HSH investment would be 10.8 billion to a maximum of 14 billion euros.

Under European Union state-aid rules, the privatisation needed to be finalised by the end of February.

Private equity groups typically cut costs at companies they buy with a view of boosting earnings and selling them for a higher price after a restructuring and new strategic set-up.

While buyout firms often hold investments for 3-5 years, Cerberus and J.C. Flowers' investment horizon is about 7 years in HSH's case, sources close to the matter have said.

In the medium term, one out of three jobs are seen at risk in the wake of the privatisation.

J.C. Flowers already held a 5 percent stake, the remainder of a 27 percent stake that the investor bought in 2006 for 1.3 billion euros, but which was diluted through the injection of state capital.

Like its peers, HSH has benefited from the first signs of recovery in the shipping market in recent months.

($1 = 0.8184 euros) (Reporting by Jan Schwartz and Arno Schuetze Editing by Tom Sims and Mark Potter)