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UPDATE 2-Apple supplier Japan Display loses out on Chinese funds, survival at risk

Takashi Umekawa and Makiko Yamazaki

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* Harvest was supposed to contribute Y60B of Y80B bailout

* Client, which sources say Apple, to invest $200 mln

* Japan Display hit by Apple's slow iPhone sales

* (Recasts with company announcement)

TOKYO, Sept 26 (Reuters) - Apple Inc supplier Japan Display Inc said on Thursday that Chinese investment firm Harvest Group would withdraw from a bailout of the cash-strapped smartphone screen maker, increasing the chance of the 80 billion yen ($743 million) deal collapsing.

The pullout of Harvest, which had offered to inject three quarters of the bailout, threatens the survival of Japan Display, which has been hit by Apple's slowing iPhone sales and a late shift to organic light-emitting diode (OLED) screens.

But Minoru Kikuoka, Japan Display's chief financial officer, said at a press briefing there were no worries about an immediate cash crunch, thanks to loans extended by Japanese government-backed fund INCJ, its biggest shareholder.

Harvest decided to pull out due to disagreements with other members of the investor group over governance, Japan Display said. The Japanese company will look for new investors to replace the Chinese fund while keeping up talks with Harvest with the aim of receiving promised investment, it added.

Meanwhile, a major Japan Display client, which sources said is Apple, intends to double its planned investment to $200 million, if Japan Display could find other investors to partially replace Harvest by the end of this year, Japan Display said.

Apple Japan was not immediately available for comment.

Apple accounted for 60.6% of Japan Display's revenue in the last financial year ended March. Japan Display still owes Apple nearly $900 million for the $1.5 billion cost of building a smartphone screen plant four years ago.

Hong Kong-based activist investor Oasis Management is still sticking with its plans to contribute $150-180 million. In addition, a major supplier and other private equity funds are showing interest in joining the deal, Kikuoka said.

The investment would give the investor group a 49.8% stake in Japan Display, replacing Japanese government-backed fund INCJ as Japan Display's biggest shareholder.

Japan Display first agreed on the bailout deal with the Chinese group in April, but was forced to change the structure as some members dropped out after making checks on Japan Displays financials.

Japan Display in August reported a tenth consecutive quarterly loss and logged a negative net worth, with liabilities exceeding assets by 77.2 billion yen.

Japan Display was formed in 2012 by combining the liquid-crystal display businesses of Hitachi Ltd, Toshiba Corp and Sony Corp in a government-brokered deal. ($1 = 107.6100 yen) (Reporting by Takashi Umekawa and Makiko Yamazaki; Editing by Clarence Fernandez, Sherry Jacob-Phillips and Alexandra Hudson)