UPDATE 3-Hanwha buys U.S. Prudential's Korea units for $425mln

* Hanwha to pay up to 490 bln won for two Prudential units

* Hanwha Group pushing into financial sector

* Shares close up 4.5 percent, KOSPI .KS11 softer (Recasts with company confirmation of deal)

By Kim Yeon-hee and Seo Eun-kyung

SEOUL, Feb 12 (Reuters) - Mid-sized South Korean broker Hanwha Securities (003530.KS) is buying two local units of U.S. insurer Prudential Financial (PRU.N) for about $425 million to better compete with bigger rivals, driving its shares up nearly 9 percent.

Hanwha Securities beat out Macquarie Group MGQ.AX to purchase Prudential Investment & Securities and Prudential Asset Management. The deal would help it move a step closer to becoming a major securities firm in a crowded sector where over 60 brokerages compete for a stake in a $165 billion industry.

U.S. group Prudential, which posted weaker-than-expected quarterly results this week, has been shedding non-core assets following the global credit crunch, and after the sale, will be left with an insurance arm in Asia's fourth-largest economy. [ID:nN10199703]

The U.S. life insurer bought the two Korean units in 2004 for 355.5 billion won.

Hanwha said it had agreed on Friday to buy the two Prudential units for up to 490 billion won ($425.3 million). It was paying an initial 340 billion won to take over Prudential Investment & Securities and could make an additional payment of up to 150 billion won in cash by the end of this year.

"The deal will help our parent group grow presence in the financial industry, mainly focusing on insurance, securities and asset management business," Hanwha Securities said in a statement.

Hanwha Securities' parent, chemicals-to-construction company Hanwha Group, has become an aggressive buyer since 2009, casting its net wide into both the shipbuilding and financials sectors. It has also been speculated as a potential buyer for Hynix Semiconductor (000660.KS), although the group denied this.

The group is also listing its insurance unit Korea Life, the country's No.2 life insurer, with $2 billion share offering in March, giving it additional acquisition firepower. The insurer is 67 percent-owned by Hanwha units. [ID:nTOE60H048]

Shares in Hanwha Securities closed up 4.5 percent after earlier jumping as much as 8.7 percent to a 3-week high, as investors questioned how the acquisition would be funded. Hanwha Securities has a market value of around $496 million.

More than 1 million shares, or almost three times the average daily traded volume over the past 90 days, changed hands.

"The deal is positive for Hanwha as it will boost its industry ranking, the number of branches and fund sales," said Joseph Shim, a Samsung Securities analyst.

"But it doesn't have enough cash for an acquisition of this size and would inevitably decide to borrow money, potentially from its group firms," he added.

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With deregulation in South Korea's financial industry, local securities companies have sought to expand into asset management, putting them in competition with banks. [ID:nSEO339605]

The deal will help the Hanwha Group secure new sales channels for products developed by Hanwha Securities and Korea Life through Prudential's branches.

It will increase the number of Hanwha's brokerage branches to 132, the third largest in the sector, the Korean broker said.

"Prudential's business is focused on asset management, different from most of South Korean brokerage companies, so it has little business overlap with Hanwha Securities," said Seo Boick, an analyst at Eugene Investment & Securities.

Hanwha Securities was ranked 14th by April-September net profit, ahead of Prudential Investment. ($1=1152.2 Won)

(Additional reporting by Miyoung Kim; Editing by Valerie Lee)