UPDATE 1-Harry Winston closes Kinross deal, ups Diavik stake

* Pays $220 mln to buy back Diavik joint-venture share

* Ownership in Diavik JV returns to 40 percent

* Shares close down 3 percent at C$10.39 (In U.S. dollars unless noted)

TORONTO, Aug 25 (Reuters) - Harry Winston HW.TO said on Wednesday it had closed a deal to reinstate its 40 percent ownership in the Diavik diamond mine in northern Canada by buying back the interest it sold to Kinross Gold (K.TO) in 2009.

Under the deal, announced late last month, the diamond miner and retailer is paying $220 million to buy back the 9 percent indirect interest it sold to Kinross in an attempt to boost its balance sheet at a time when the diamond industry was hit hard by the global economic downturn.

The deal includes $50 million in cash, a note payable in the amount of $70 million and about 7.1 million Harry Winston common shares, worth about $100 million.

Diavik, located in the Northwest Territories, is Canada's largest diamond mine. It has produced more than 50 million carats of rough diamonds since operations began in 2003.

Harry Winston shares closed down 3.26 percent at C$10.39 on the Toronto Stock Exchange on Wednesday, while Kinross shares were up 2.28 percent at C$16.62 .

($1=$1.05 Canadian) (Reporting by Julie Gordon; editing by Peter Galloway)