* Seeking up to $500 mln in new funding
* Funds could be used for expansion
* Ride-hailing app has 20 million registered isers (Updates number of registered users)
DUBAI, March 28 (Reuters) - Careem, Uber's main ride-hailing app rival in the Middle East, is in early talks to raise as much as $500 million in new funds from investors, sources told Reuters.
Careem, which declined to comment, is testing the appetite of potential investors, three sources said.
The company was estimated to be worth about $1 billion as of December 2016, but it was not immediately clear what the latest valuation would be based on the proposed funding round.
Some of the new money raised could go towards new business lines, one source said, adding Careem may be looking to diversify ahead of a potential initial public offering (IPO).
Careem has repeatedly said that a listing is eventually on the cards, but that it was not an immediate focus for the company.
It said in June it had raised $150 million from investors including Saudi Arabia's Kingdom Holding and German car maker Daimler, closing out a $500 million funding round. Other investors in Careem include China's largest ride-hailing DiDi Chuxing, which has attracted funding from SoftBank Group Corp .
Careem says it has 20 million registered users and operates in more than 90 cities. It has said it is eager to enter new markets such as Tunisia and Algeria and in February announced the acquisition of restaurant listing reservation platform RoundMenu, which it said it would use to trial food delivery services.
A second source said they had been approached by a third party to participate in Careem's latest funding round.
Uber Technologies, which is preparing for a potential IPO in 2019, is pulling back from some markets including Russia, China, and South East Asia in the face of fierce competition.
IPO AN OPTION
In Egypt, both Uber and Careem had their licences suspended on March 20 by a court ruling after taxi drivers sought to shut down their operations.
Careem, however, said it had not yet received any official request to stop operations and continued to operate as normal.
Chief Executive Mudassir Sheikha said in June 2017 that Careem, which is targeting profitability in the second half of 2018, could speed up plans to expand its registered drivers to one million in 2018, up from 250,000 at the time.
Sheikha said in March 2017 an IPO was "one of several options for an exit or liquidation" for Careem.
Both Uber and Careem are yet to make a profit, said the third source, a Gulf-based investor.
"At some point, they need to become profitable and show some potential cash flow coming in," this source said.
Middle East start-ups have begun to attract more attention from global companies, including Amazon which bought online retailer Souq.com last year, in a deal described as the largest technology M&A deal in the region.
Chinese e-commerce company JD.com told Reuters in October that it was looking to partner with the Saudi government to enter the Middle East market. (Editing by Louise Heavens/Jane Merriman/Alexander Smith)