UPDATE 1-VW to announce $340 mln Tennessee investment to build new SUV -source

-source@ (Adds more details, trade issues)

WASHINGTON, March 19 (Reuters) - Volkswagen AG will announce on Monday that it plans to invest $340 million to build a new sport utility vehicle at its Chattanooga, Tennessee, plant in the United States as demand surges for larger vehicles, according to a person briefed on the announcement.

Tennessee Governor Bill Haslam is set to be at VW's plant in Chattanooga for a 2:30 p.m (1800 GMT) announcement for a new project, his office said, without elaborating on what that project would be.

In 2017, VW Group of America Chief Executive Officer Hinrich Woebcken told reporters at the New York auto show that the automaker planned to build a five-seat SUV in Tennessee, but he declined to say when production would begin.

Automakers are bracing for the impact of new steel and aluminum tariffs on metal produced outside North America. Haslam told reporters last week the tariffs could add costs to manufacturers, especially automakers, that could be "very harmful."

VW said in February that 54 percent of its total own-brand volume sales were SUVs. In addition to the new Atlas, VW also unveiled an all-new 2018 Tiguan SUV last year.

The German automaker is still working to improve its image in the United States after it admitted to cheating on diesel emissions tests in 2015, sparking the biggest business crisis in its history. (Reporting by David Shepardson, Editing by Rosalba O'Brien)