UPDATE 1-Chinatrust, China Strategic shares jump on AIG deal

* Chinatrust, China Strategic stocks rise sharply

* Chinatrust agrees to buy 30 pct stake of AIG's unit

* China Strategic to take nearly 10 pct stake of Chinatrust

* Deal to settle Chinatrust, AIG dispute over Nan Shan (Adds closing prices)

TAIPEI, Nov 18 (Reuters) - Shares of Chinatrust Financial (2891.TW) rose on Wednesday after the company agreed to buy a 30 percent stake of AIG's (AIG.N) Taiwan unit from China Strategic (0235.HK), fanning hopes the deal will brighten Chinatrust's outlook.

Chinatrust outperformed the market and rose as much as 4.2 percent in early trade, but later gave back most of the gains to end up 0.75 percent, beating the main TAIEX index's .TWII 0.43 percent gain.

China Strategic's Hong Kong shares shot up as high as 25 percent, before paring gains to trade up 8.33 percent by 0638 GMT, outperforming the Hang Seng index's .HSI 0.5 percent fall.

Chinatrust, which had lost a bid to China Strategic to buy the Nan Shan unit, said late on Tuesday it agreed to buy the stake for $660 million.

In exchange, China Strategic would take a 9.95 percent Chinatrust stake, worth about T$20.8 billion ($648 million), via a private placement, according to a statement from Chinatrust, Taiwan's top credit card issuer.

The acquisition was seen as a settlement between Chinatrust and China Strategic, which AIG had announced as the winner of its entire 97.5 percent stake in the Nan Shan unit.

After China Strategic and Primus jointly won the bid for Nan Shan, Chinatrust had considered suing AIG because its bid was higher than the 2.15 billion joint bid by China Strategic and Primus. [ID:nTP133123]

Chinatrust had offered $2.4 billion, a source told Reuters in September. [ID:n89584]

The deal on Tuesday will allow Chinatrust a foothold in the insurance market, analysts said.

"Chinatrust has been eager to expand into the insurance business. The stake purchase makes it possible," said an analyst at an European brokerage.

"The stake investment is only 30 percent, which would be manageable for Chinatrust," he said, declining to be identified as he was not authorised to speak to media.

After Tuesday's deal, China Strategic will ultimately hold a stake of about 50 percent in Nan Shan, with Chinatrust taking another 30 percent and Primus close to 20 percent.

($1=T$32.13) (Reporting by Faith Hung; Editing by Lee Chyen Yee)