UPDATE 3-T. Rowe to buy 26 pct of India's UTI for $140 mln

* Four UTI shareholders to sell 6.5 pct each

* Deal one of the cheapest for a large domestic fund firm

* T. Rowe gets vast distribution network, retail clients

* UTI hopeful of managing foreign assets (Adds T Rowe CEO interview and details, adds BOSTON to dateline)

By Nishant Kumar and Ross Kerber

MUMBAI/BOSTON, Nov 9 (Reuters) - The four shareholders of India's UTI Mutual Fund will sell a combined 26 percent stake to T. Rowe Price Group Inc (TROW.O) for $140 million, giving the U.S. money manager a cheap entry into the fiercely competitive Indian funds industry.

"It's a major bet on India," T. Rowe Price chief executive James A.C. Kennedy told Reuters in an interview. He cited India's rapidly growing population and a savings rate of more than 30 percent, most of which currently is held by banks or in gold stocks rather than funding domestic companies.

"Gradually the Indian people will be putting more money into long-term investments, meaning bonds and equites, and we want to be there to help them," Kennedy said.

State Bank of India (SBI.BO), Punjab National Bank (PNBK.BO), Bank of Baroda (BOB.BO) and Life Insurance Corp of India, which each own 25 percent of the firm, will receive 1.63 billion rupees ($35.1 million) each for selling a 6.5 percent stake, UTI chairman U.K. Sinha told Reuters.

At that price, the deal valuation works out to 3.3 percent of UTI's average assets in October, one of the cheapest for a large domestic fund firm.

"Given UTI's long history, wide reach and more retail equity assets, this looks to be a relatively cheaper valuation," said Chintamani Dagade, a senior research analyst at Morningstar.

UTI is India's oldest and fourth-biggest mutual fund firm. It had average assets of 768.5 billion rupees in October, more than 10 million client folios and presence in 460 districts, offering one of the biggest distribution networks in India.

T. Rowe Price joins the likes of Italian bank UniCredit's (CRDI.MI) arm Pioneer Global, South Korea's Mirae Asset, France's Axa (AXAF.PA) and Japan's Shinsei (8303.T), which have started Indian operations over the last two years.

More than 20 firms, including Credit Agricole (CAGR.PA) and UBS (UBSN.VX), are said to be considering an entry into India.

The deal gives T. Rowe access to the 37-member Indian fund market, which is forecast by the Boston Consulting Group to manage $520 billion by 2015, up from $135 billion in September.

For UTI, T. Rowe opens up opportunities to attract offshore assets at a time when inflows from local investors are slowing.