UPDATE 1-Hyundai Heavy buys CJ Group's broker, asset firm

(Adds background, analyst comment)

SEOUL, May 30 (Reuters) - Hyundai Heavy Industries Co Ltd (009540.KS), the world's top shipbuilder, said on Friday it and an affiliate would buy a small brokerage and an asset management firm from South Korean conglomerate CJ for an undisclosed sum.

With the deal, Hyundai Heavy joins the ranks of South Korean manufacturers and banks which have been buying or moving to launch securities houses. The sector is set to benefit from deregulation next year and an increasing inflow of funds from investors switching from low-yield bank accounts.

Hyundai Heavy and affiliated Hyundai Mipo Dockyard Co Ltd (010620.KS) signed a preliminary deal to buy 74 percent of unlisted CJ Investment & Securities Co Ltd from CJ Group companies and CJ chairman Lee Jay-hyun.

They will also separately buy 7.4 percent of CJ Asset Management Co Ltd from Lee. CJ Investment already owns a 91 percent stake in the asset management firm.

Shares in Hyundai Heavy were flat at 371,500 won by 0207 GMT, compared with a 0.13 percent loss in the broader market . Investors had already priced in the acquisition as Hyundai was reportedly on the final shortlist of candidates to buy both companies from the food- and media-focused CJ Group.

Earlier this week, a local analyst had said that CJ Investment had attracted four bidders, including Hyundai Heavy and ING Group (ING.AS).

Hyundai Heavy said in a statement the deal was aimed at improving the management of cash and other assets owned by the company and its affiliated shipbuilders, which are enjoying a booming ship market.

"We will grow CJ Investment & Securities into a world-class asset manager and investment bank, and eventually our group's core business," it said. "Diversifying our business will help us build a more stable profit structure."

But analysts question the benefits manufacturing companies in general could gain from brokerage acquisitions, which some find reminiscent of the relentless expansion drive by South Korean business groups that sent the country to the verge of bankruptcy a decade ago.

"It seems that Hyundai just wants to pool its cash assets somewhere," said Yoon Pil-joong, a Samsung Securities analyst.

"I don't think there will be any significant benefits from operating financials."

For the CJ Group, led by CJ Corp (001040.KS), the sale is part of ongoing efforts to shed non-core operations and the proceeds are likely to be used for overseas acquisitions, analysts said.

CJ said in a statement the deal was made in line with the group's 2007 reform to a holding company structure.

Hyundai Motor Co (005380.KS), South Korea's biggest auto maker, and top local lender Kookmin Bank 060000.KS bought small brokerage companies last year as new regulations will from 2009 make it easier for securities houses to package and sell derivatives and develop in-house funds.

Both Hyundai Heavy and Hyundai Motor were spun off from the former Hyundai Group, which saw its brokerage and asset management units taken over by the government in 2001 due to financial problems. (Additional reporting by Park Ju-min) (Reporting by Rhee So-eui and Kim Yeon-hee, editing by Marie-France Han and Jonathan Hopfner)