UPDATE 1-Sanofi to buy stake in Japan generic drug maker

* Sanofi to invest $48 mln in Nichi-iko for 4.7 pct stake

* Sanofi to pay 2,894 yen per Nichi-iko share, 4 pct discount

* Sanofi, Nichi-iko to set up joint venture in Japan

* Nichi-iko shares rise 1.2 pct, in line with broader market

TOKYO, May 28 (Reuters) - French drugmaker Sanofi-Aventis (SASY.PA) will enter Japan's generic drugs market by investing $48 million in Nichi-iko Pharmaceutical 4541.OS, the Japanese generics maker said on Friday.

Sanofi will pay 4.4 billion yen ($48.4 million) for a 4.66 percent stake in Nichi-iko, and the two companies will also set up a joint venture to sell Sanofi's insomnia drug Amoban in Japan's $97 billion drug market.

Sanofi has been steering away from focusing on blockbuster drugs, which are increasingly hard to develop and are vulnerable to patent challenges. It has been seeking to expand in areas like generics, consumer health and emerging markets.

Growth in Japan's generic drug market has been spurred on by a government keen to rein in rising healthcare costs. It aims for generics to make up 30 percent of the drug market by sales volume in the year to March 2013, up from about 20 percent now.

Sanofi will pay 2,894 yen per Nichi-iko share, a 4 percent discount to Nichi-iko's closing share price the previous day. Nichi-iko shares jumped on Thursday after a newspaper reported on Sanofi's planned investment.

After the announcement, Nichi-iko shares were up 1.2 percent at 3,050 yen, largely in line with the broader market. (Reporting by Sachi Izumi; Editing by Hugh Lawson)