UPDATE 2-EU seeks to overcome Latin American trade disputes
* EU leaders in Chile to deepen trade, mend ties with Argentina
* EU, Latin American leaders to issue expression of unity
* Deal with Mercosur trade bloc is biggest prize
By Robin Emmott and Alejandro Lifschitz
SANTIAGO, Jan 25 (Reuters) - Spain told Latin America on Friday to respect its investments after Argentina and Bolivia nationalized three companies last year, but it trod carefully before a summit where the EU will seek to boost trade with the region.
Europe needs Latin America more than ever to help it recover from a deep banking and debt crisis that has driven many of its economies, including Spain, into recession.
Still, a split between the open economies of Mexico and Chile and more protectionist Argentina and Brazil is complicating European Union efforts to foment economic growth through trade deals and investment.
"Spain is ready to try to understand everyone's positions, but the government ... and its companies also have the right to be respected," Spanish Prime Minister Mariano Rajoy told reporters in Santiago before the weekend summit.
Argentine President Cristina Fernandez seized control of oil company YPF from its parent, Spain's Repsol, last year and tensions have been worsened by disputes over sweeping import curbs that are now at the World Trade Organization.
Bolivian President Evo Morales nationalised two power companies owned by Spanish utility Iberdrola in December.
But with trade flows between Latin America and the European Union more than doubling over the past decade, EU leaders and their Latin American counterparts will seek to show unity in their final statement to be delivered on Sunday evening, according to a draft seen by Reuters.
The final statement agrees on the need to welcome foreign investment and commit to more open trade.
"We firmly reject all coercive measures of unilateral character that are contrary to international law and the commonly accepted rules of free trade," the leaders meeting in Santiago will say, according to the draft.
"We agree this type of practice poses a serious threat to multilateralism," the draft said.
Europe is the top foreign investor in Latin America and Rajoy called on companies from Mexico to Uruguay to invest in Spain as it struggles with record unemployment and one in every two young Spaniards cannot find work.
The greatest prize for the European Union would be a free-trade deal with commodities-exporting giants Brazil and Argentina, which are part of the South American Mercosur bloc.
An accord would encompass 750 million people and $130 billion of annual trade, helping European exporters, particularly of cars, machinery and luxury goods. Advocates say it might also spur economic growth in South America, where many components and input goods for Europe are produced.
EU diplomats in Santiago say European leaders, including Rajoy and German Chancellor Angela Merkel, will make a renewed push for momentum on Mercosur at the summit.
But the talks, which first started almost 20 years ago, were already relaunched in 2010 to little effect and have run into a host of problems over the years, from Brazilian import tariffs driven by a strong real, to European farm subsidies that make it harder for Mercosur to export there.
Global Trade Alert, an independent body monitoring global trade, says Brazil is one of the 10 most protectionist countries in the world. It has moved to block a surge of imports driven by its strong real currency ranging from Finnish steel to Chilean wine.
Europe could choose to deepen its links with others, including the faster-growing economies of the Pacific, including Peru, Mexico and Chile. However, Alicia Barcena, head of the U.N.'s regional economic body ECLAC warned against such a strategy.
Pacific nations "cannot go behind Mercosur and Brazil's back," Barcena said. "It is important to avoid a division."