UPDATE 3-Daiwa buys REIT stake to expand property business

* Daiwa to buy all shares of DaVinci Select for 3.4 bln yen

* Daiwa to invest 10 bln yen in DA Office Investment

* Shares of DA Office, DaVinci Holdings, Daiwa rise

By Emi Emoto and Mariko Katsumura

TOKYO, June 17 (Reuters) - Daiwa Securities Group (8601.T), Japan's No. 2 brokerage, said it would spend about $140 million to take a stake in a real estate investment trust (REIT) and buy the trust's asset manager, seeking to expand its property business.

Daiwa has positioned its real estate business as a key driver of growth and hopes the deal will allow it to generate steady fee income. The move may also breathe life into Japan's REIT market, which has been hit hard by the global credit crunch.

Shares in the REIT and its parent jumped after news of the acquisition was first reported ahead of the official announcement by Reuters.

Mitsubishi Estate Co (8802.T), Japan's second-biggest developer, also said on Wednesday that it is interested in buying a REIT in Japan. [ID:nTKF106432]

Daiwa plans to pay 10 billion yen ($103.7 million) to acquire a 13 percent stake in real estate investment trust DA Office Investment Corp (8976.T) through a new share issue. It will also buy DaVinci Select, the firm that manages the REIT's portfolio of office buildings for 3.4 billion yen.

DaVinci Select's loss-making parent, DaVinci Holdings 4314.OJ, has faced pressure to sell assets after the credit crunch made it harder for real estate firms to roll over loans -- prompting a string of bankruptcies in the sector.

"Daiwa has been wanting to enter the REIT market, and they finally got it," Daisuke Seki, chief executive officer of Tokyo-based REIT consultancy IB Research and Consulting Inc, said prior to the announcement.

"The (REIT) market will benefit if major companies with solid finances become sponsors because such companies would have little trouble running the business."

Japan's property market has been hit hard as the country's worst recession since World War Two saps demand for houses and office space. In 2008 alone, nearly 600 real estate firms collapsed, including several listed firms.

Daiwa Securities said in a statement that it aims to build up a lineup of property investment products for its clients.

Sources told Reuters earlier this year that DaVinci Holdings, facing a June deadline for massive loan repayment, was trying to sell three Tokyo office buildings it bought for $4.5 billion. [ID:nT260007]

DaVinci Holdings fell into the red in 2008 and watched its share price lose three-quarters of its value over the past year.

Prior to the announcement, shares in the REIT, DA Office Investment ended up 15 percent at 226,900 yen after being untraded during the day due to a glut of buy orders. Shares in Daiwa finished up 0.5 percent at 650 yen while DaVinci Holdings rose 5.9 percent to 21,700 yen.

Tokyo's REIT index .TREIT gained 2.1 percent as investors bet Daiwa's entry would boost the sector and trigger similar moves. ($1=96.47 Yen) (Additional reporting by Mayumi Negishi and Taiga Uranaka; Editing by Edwina Gibbs)