UPDATE 1-Universal to offer to sell some EMI labels -sources

* EU concessions to include EMI's classical, jazz labels

* Package will also include Virgin Records

By Foo Yun Chee

BRUSSELS, July 17 (Reuters) - Vivendi's Universal Music Group will offer to sell three music labels belonging to takeover target EMI in a bid to ease European Union competition concerns about the $1.9 billion deal, two people familiar with the matter said on Tuesday.

The European Commission has warned Universal that its plan to buy EMI's recorded music business will significantly impede competition, signalling a possible veto unless it offers major concessions, three people familiar with the matter have told Reuters.

The combined company would be almost twice the size of its nearest rival in Europe while Universal's global market share of recorded music would rise to 36 percent from 26.5 percent.

Universal will offer to sell EMI's classical and jazz labels and its Virgin Records, one of the people said, declining to be identified because of the sensitivity of the matter.

"The Commission prefers entire businesses to be divested," the source said.

The EU watchdog has set a Sept. 6 deadline for its decision.

Universal's stars include Lady Gaga, Rihanna and U2 while EMI's recorded music catalogues include The Beatles and Katy Perry.

EMI seller Citigroup Inc acquired the record label after its previous owner, buyout firm Terra Firma, defaulted on loans owed to the investment bank.