UPDATE 1-Germany's Quelle gets federal loan aid-officials

(Adds agreement reached)

By Gernot Heller

BERLIN, June 29 (Reuters) - The German government agreed with two state governments to provide a loan guarantee of 50 million euros ($70 million) for the Quelle mail order unit of Arcandor (AROG.DE), state government officials said on Monday.

State ministers from Bavaria and Saxony said after a four-hour meeting in Berlin's Economy Ministry they had reached an agreement with the federal government, which will back 25 million euros while the states also will back 25 million euros.

"We've reached an agreement with the federal government to back loans totalling 50 million euros," said Georg Fahrenschon, Bavaria's state Finance Minister, at the Economy Ministry in Berlin after a four-hour meeting with federal officials.

Germany had been discussing whether to back the loan to keep Quelle alive after parent company, retailer Arcandor, filed for bankruptcy. Hopes for a deal have been repeatedly raised in recent days, only to fade again.

Saxony's state Economy Minister Thomas Jurk told reporters in Berlin the federal government agreed to provide backing for 25 million euros while Saxony would back 4.5 million euros and Bavaria the rest. Quelle has operations in Bavaria and Saxony.

No representatives from the federal government spoke to reporters at the briefing after the meeting ended. But Fahnenschon said his announcement was a joint statement on behalf of the federal and state governments.

"With this agreement Quelle now has a chance for a reorganisation," said liquidator Klaus Hubert Goerg, who also took part in the talks in the Economy Ministry.

"But no one should expect this to run by itself now," Goerg said.

Quelle, which comprises the biggest part of Arcandor's Primondo mail-order business, traces its roots to wholesaler Gustav Schickedanz, who sought from 1927 to circumvent the middleman by selling his goods directly to consumers.

The company has been hit by weak demand in Germany in recent years as it struggles to catch up with consumers' rapid shift from flipping through paper catalogs to ordering goods on the Internet.

The protracted negotiations over the loan guarantee has hurt Quelle's business, according to a report to appear in Tuesday's Die Welt newspaper.

"At first the announcement about insolvency (at Arcandor) did not have much of an impact but volumes fell in recent days after all the headlines," a Quelle spokesman told Die Welt. (Reporting by Gernot Heller; Writing by Erik Kirschbaum; Editing by Carol Bishopric)