UPDATE 1-S.Africa's ANC backs Manuel as head of planning unit

* ANC supports Manuel as head of policy unit

* Favours "neutral" experts to develop policy

* ANC says it can convince partners to accept Manuel (Adds analyst comment, paragraph 9-10)

By Peroshni Govender

JOHANNESBURG, Nov 9, (Reuters) - South Africa's ruling ANC has backed Trevor Manuel's leadership of the government's national policy planning commission, dealing a blow to the party's trade union allies who want the former finance minister sidelined.

Labour federation COSATU wants Economic Development Minister Ebrahim Patel, a former trade unionist, to be responsible for policy direction as it seeks to push the country towards a leftist economic stance.

It says planning minister Manuel is too close to business and that a team of cabinet ministers should lead the National Planning Commission (NPC) -- formed in May but yet to start work -- tasked by President Jacob Zuma with guiding policy.

Patel's inclusion in the cabinet's economic cluster last month over Manuel sparked concern that Manuel was being sidelined and his influence in decision-making was waning. But Monday's endorsement from the African National Congress shows that he should remain a key policy maker.

ANC Secretary-General Gwede Mantashe said the party's top leaders at the weekend agreed that a commission consisting of experts that Manuel would oversee was the best way to develop "neutral" government strategies.

"They will focus on planning, there will be no turf wars and battles (between cabinet ministers). Planning will be done in a more neutral way," he said, following a meeting of the National Executive Committee, the ANC's highest decision-making body.

Mantashe said the party was confident that it could convince its allies -- COSATU and the South African Communist Party -- to accept the NPC. The alliance holds a summit for three days from Friday.

"I don't think we will not have an agreement at the summit," he said.

Analysts said that in backing Manuel the ANC may be trying to reassert the party's dominance within the alliance after the unions had become more vocal in demands for change.

"COSATU has been calling for a shift in economic policy ... (but) the ANC is laying down the line. It's a move to show that that it is reinstating its own dominance," said Mike Davies, Middle East and Africa analyst at Eurasia Group.

COSATU and the SACP say Manuel's proposals for the NPC, which envisage academics and other experts helping to set overarching policy direction, will give him too much power.

At this stage the panel of 20 experts has not yet been chosen but Mantashe said they will come from diverse backgrounds.

"We can't just have economic experts. We must have a balanced composition," he said.

Defending the ANC's support for neutral experts, Mantashe said panels comprising cabinet ministers can "sometimes derail" planning with different departments furthering their own interests. (Editing by Giles Elgood)