UPDATE 1-Panama awards $3 bln contract to Sacyr, Impregilo

(Adds detail on contract, background, byline)

By Sean Mattson

PANAMA CITY, July 15 (Reuters) - A consortium led by Spanish company Sacyr Vallehermoso (SVO.MC) and Italy's Impregilo (IPGI.MI) has won a $3 billion contract to expand the Panama Canal, the Canal Authority said on Wednesday.

Last week, the Panama Canal Authority said the Spanish-Italian consortium had submitted the best bid for the contract, making it likely the group would be awarded the deal.

The contract is to build new locks and water-saving basins and work should begin within 42 days, the authority said in a statement.

It is the largest portion of a $5.25 billion project to expand the interoceanic canal, which handles about 5 percent of all global trade.

The expansion, due to be finished in 2014, will allow much larger ships to transit the canal.

The companies submitted the best price as well as the best technical proposal, beating a group led by privately owned U.S. firm Bechtel and a group including Spanish giants ACS (ACS.MC), FCC (FCC.MC) and Acciona (ANA.MC).

The two groups have eight days to review the decision and file a protest, the authority said.