UPDATE 1-Only suitor for Alcoa's Italy smelter pulls out -unions
* Alcoa reiterates ready to keep talks until Aug. 31
* Alcoa says to keep Portovesme emloyees fully employed to Dec. 31
* Alcoa to provide employees with social protection schemes
MILAN, Aug 1 (Reuters) - The only potential suitor for Alcoa's Italian smelter has broken off talks with the government, labour unions said on Wednesday, putting hundreds of jobs at risk.
The U.S. aluminium company had planned to close its Portovesme smelter on the island of Sardinia by mid-year as part of efforts to cut global output and costs.
Following strong objections from Italian authorities, Alcoa agreed in March to keep the smelter running for a further two months while it looked for buyers.
But the only interested party, German hedge fund Aurelius, pulled out of talks with the government after failing to present a viable industrial plan, the FIM CISL metalworkers union said.
The government has asked Alcoa to consider further offers and further extend the deadline for shutting the smelter, the union said following a meeting with officials.
"Although we could not reach an agreement so far, we will remain open to negotiations through August 31. As agreed by all parties in March, if there is no letter of intent at that time, the curtailment process will begin on September 1," Alcoa said in a statement.
The company said it was committed to keep all of its Portovesme employees fully employed until Dec. 31. Then it would maintain the plant for one year to allow for a potential restart, by another operator, in case circumstances change.
"To allow for this option it is critically important to do the curtailment in an orderly fashion, it addded.
The company also said it would keep its commitment to provide employees with an earlier agreed social support package, including specific Italian schemes such as cassa integrazione and mobilita, as well as with retraining and professional assistance to help employees find alternative employment.
"We will work with all stakeholders to minimize the impact of this curtailment as much as possible," it said.
Under the March agreement, Alcoa would start powering down the smelter on Sept. 1 if no letter of intent was signed with an investor by Aug. 31. If no sale was closed by Oct. 31, the shutdown - taking several days - would start on Nov. 1, the U.S. company has said.
Unions and Sardinian authorities say a shutdown would cost about 500 jobs at Alcoa and about 1,000 ancillary ones - a bitter pill to swallow in a country where unemployment is rising and the economy shrinking.
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