UPDATE 1-Infineon to increase capital-sources

* Apollo could take stake of up to 29 pct-source

* Apollo aims to have at least 15 pct-paper

* Infineon to raise about 700 mln euro in cap hike-paper (Releads on sources, adds details, background)

FRANKFURT, July 10 (Reuters) - Embattled German chipmaker Infineon (IFXGn.DE) is preparing a capital increase to shore up its finances, two people familiar with the plans told Reuters late on Thursday.

U.S. activist investor Apollo Management LP [APOLO.UL] is about to take a stake in Infineon of up to 29 percent as part of the capital injection, one of the sources said, adding the move would be officially announced early next week.

Infineon, which has been buffeted by a slump in global chip prices, said it would not comment on matters of refinancing, when contacted by Reuters.

Buyout firm Apollo agreed to snatch up all shares in a planned 325 million-share rights issue that are not taken by existing shareholders, one source said.

Financial Times Deutschland (FTD) had earlier reported the imminent capital increase in an excerpt of an article to be published on Friday, citing unspecified sources.

The paper said new shares would be offered at 2.15 euros apiece and that the proceeds from the share sale would amount to about 700 million euros ($980 million), providing a stronger financial safety net during the downturn.

Infineon's shares earlier closed 3.9 percent lower at 2.575 euros.

Apollo aims to obtain a stake in the chipmaker of at least 15 percent, FTD said.

It would therefore supersede investment fund Dodge & Cox, which holds little over 10 percent, as largest shareholder.

The capital increase had been promoted by Infineon Chairman Max Dietrich Kley and Chief Executive Peter Bauer, and was recently approved by Infineon's supervisory board, the paper added.

The loss-making chipmaker earlier this week said it was selling its wireline communications business, its only profitable unit, for 250 million euros, prompting a boost in its shares. [ID:nL745979]

CEO Bauer said at the time that the divestment did not mean the issue of refinancing was fully resolved. (Reporting by Ludwig Burger, Jens Hack, Alexander Huebner and Philipp Halstrick; Editing by Steve Orlofsky)