UPDATE 2-China Mengniu Dairy to sell $800 mln stake - source

* Private equity fund Hopu and COFCO seen investing in Mengniu - source

* Mengniu shares suspended pending an announcement

* Investment seen as bet on Mengniu's long-term prospects

(Add details and background)

By Michael Flaherty and Donny Kwok

HONG KONG, July 6 (Reuters) - Two Chinese entities are set to invest around $800 million for 20 percent of China Mengniu Dairy (2319.HK), a source familiar with the matter said, the latest cash infusion for an industry recovering from a tainted milk scandal.

One investor would be Hopu Investment Management, a private equity fund founded by Fang Fenglei, chairman of Goldman Sachs' (GS.N) China joint venture, a person familiar with the matter said on Monday.

Mengniu was likely to make an official announcement later in the day, he added, speaking on condition his name not be used because he was not authorised to talk to the media.

The other investor would be China National Oils, Foodstuffs and Cereals Corp (COFCO), the country's largest food importer and exporter, the Wall Street Journal reported.

Hopu and Mengniu representatives were not immediately available for comment.

Mengniu was one of the Chinese dairies found to have sold milk containing melamine during last year's tainted milk scandal. It and other major dairies like Yili (600887.SS) and Bright Dairy (600597.SS) all saw major sales declines in the scandal's wake, leaving them needing cash to fund their sprawling operations.

Mengniu shares plunged 67 percent in September last year after the scandal broke. They have come back since then, up about 89 percent this year, but are still 20 percent below their pre-scandal levels.

Shares were suspended on Monday pending an announcement.

LESSONS LEARNED

Fund managers said the outside investment may be less designed to seize on low valuations, and is more of a bet on Mengniu's long term prospects.

"It is a China consumption play story. As the dairy industry is protected by the government, it is a safe bet when compared with others such as sportswear, and if investors want to bet on a recovery of China's economy," said Alex Wong, a director of Ample Finance Group in Hong Kong.