UPDATE 1-Urban to sell securitisation business to fund-source

(Updates with more details, background)

By Mariko Katsumura

TOKYO, Dec 22 (Reuters) - A fund set up by Kyokuto Securities (8706.T) and Chuo Mitsui Trust Bank plans to take over the real estate securitisation business of failed Japanese property developer Urban Corp, which is set to submit rehabilitation plans on Monday, an informed source said.

Urban also plans to sell its residential business to a joint venture formed by Hiroshima Bank Ltd (8379.T) and Hiroshima Venture Capital, said the source, who declined to be identified because the information is not yet public.

Hiroshima-based Urban will replace its board and go into liquidation in about two years' time, according to the source. Urban, which filed for court protection from creditors in August with 256 billion yen ($2.84 billion) in debt, has over 100 properties in Japan, including one in front of Tokyo's busy Shinbashi station.

The developer is scheduled to file its rehabilitation plans on Monday with the Tokyo district court.

Urban spokesman Shinichi Kobori said the company had no comment. Kobori said, however, that the developer is planning to announce the details of the rehabilitation plan on its website later on Monday.

The plan has been eagerly awaited by some foreign property investors because of the blue chip real estate owned by Urban.

Sources told Reuters last month that Urban was likely to be taken over by a consortium led by Japanese builder Daiwa House Industry Co (1925.T).

But the consortium last week decided to pull out of the deal due to opposition from some Daiwa House shareholders who saw the rescue as too expensive and risky, according to a source familiar with the matter. [ID: nT219043]

Goldman Sachs (GS.N), Merrill Lynch MER.N and U.S. property investor Aetos Capital also showed interest in Urban but eventually decided against a deal, according to two sources.

In August, Urban hired Deutsche Securities, a unit of the German bank, to help it find an investor.

Kyokuto Securities shares were trading up 0.2 percent at 440 yen while those of Hiroshima Bank stood flat at 367 yen as of 0449 GMT. The Nikkei 225 index .N225 advanced 1.2 percent.

(Reporting by Mariko Katsumura; Editing by Chris Gallagher)