UPDATE 1-Haitong shares halted in Shanghai after Taifook deal

* Trading in shares of Haitong, Taifook suspended

* Haitong has agreed to buy control of Taifook - source

* More Chinese brokerages expected to follow suit (Adds background, analyst quotes)

By Samuel Shen and Doug Young

SHANGHAI/HONG KONG, Nov 16 (Reuters) - Shares of Haitong Securities (600837.SS), China's No.2 brokerage, were suspended from trade on Monday following a Reuters report that it plans to buy control of Hong Kong's Taifook Securities Group (0665.HK).

Share of Taifook were also suspended in Hong Kong, as were shares of NWS Holdings (0659.HK), which holds 62 percent of Taifook. Last week NWS said it was in talks to sell some of all of its Taifook stake, but did not identify a buyer.

Haitong had agreed to buy some or all of NWS's stake in Taifook, and planned to bid for the remaining shares later, which valued Taifook at $454 million, a person with direct knowledge of the situation told Reuters on Saturday. [ID:nHKG156936]

The deal would be the first purchase of a Hong Kong brokerage by a Chinese counterpart looking to expand outside of the mainland, with more likely to follow. "Hong Kong is attracting listings of more and more influential mainland companies, and will also become an offshore centre for the Chinese yuan. However, mainland brokerages are too weak there," said Ren Chengde, analyst at Galaxy Securities. "If the Haitong acquisition is successful, it will encourage more Chinese brokerages to follow suit."

Shanghai-based Haitong, which owns two fund houses, two direct investment companies and a Hong Kong subsidiary, aims to become a more international investment banking group.

Buying a brokerage in Hong Kong would enable Chinese companies to immediately obtain business licenses and quickly expand their presence in an international financial market that bears a cultural affinity with mainland China, according to Chen Shuang, chief executive of China Everbright Ltd.

"Hong Kong is a very good platform that could link overseas and Chinese capital markets," Chen said. "Hong Kong shares a lot of similarities to the mainland in terms of language and culture, so Haitong's acquisition would be a good start."

SHARES JUMP

Taifook shares jumped nearly 13 percent on Thursday after NWS first announced that it was in talks to sell some or all of its Taifook stake. They jumped another 6.6 percent on Friday to close at HK$4.85.

Haitong would buy the NWS stake for about HK$5 per share through a Hong Kong subsidiary, valuing Taifook at about HK$3.5 billion, a source familiar with the deal told Reuters.

Earlier reports indicated that China Construction Bank (601939.SS) was also interested in the stake.

Haitong has previously indicated it wants to purchase other financial services firms to create a more complete business, and use Hong Kong as its base for expansion. Taifook has 11 brokerage outlets in Hong Kong and one in Macao.

About 23 Chinese financial institutions, including Bank of China 601988.SS?, Citic Securities <600030.SS and Guotai Junan Securities Co have set up brokerage or investment banking units in Hong Kong, but their businesses are small there compared with Western rivals such as Goldman Sachs (GS.N) and Morgan Stanley (MS.N). (US$1=6.832 Yuan)