UPDATE 1-India's UTI close to 26 pct stake sale - sources

* Deal valued at $175-$200 mln, or 7-8 pct of UTI assets

* Decision likely by end-February; T Rowe front-runner

* Shinsei, Actis and ChrysCapital also in the race (Adds detail, quotes, bylines)

By Narayanan Somasundaram and Nishant Kumar

MUMBAI, Feb 9 (Reuters) - India's UTI Asset Management is close to selling a 26 percent stake for $175-$200 million to one of at least four investors and private equity firms, valuing the firm at 7-8 percent of assets, banking sources said.

UTI has held talks with U.S. money manager T Rowe Price (TROW.O), Japan's Shinsei Bank (8303.T) and private equity firms Actis and ChrysCapital for the deal, likely to close by late February, three banking sources and one company source with knowledge of the transaction said.

The sources, including one who is directly involved in the negotiations, declined to be named as they were not authorised to speak to the media. One banking source said T Rowe Price was the front-runner.

UTI Chairman U.K. Sinha told Reuters last week the deal was on, but declined to give details.

"We have short listed a few investors," he was quoted as saying in DNA newspaper on Friday. "There is a lot of ground to cover."

Last July, UTI Asset Management dumped plans for a $480 million initial public offer of a 49 percent stake due to falling stock markets.

UTI, the fourth-largest Indian mutual fund and the most profitable, had assets worth $9.5 billion at the end of January.

Two bankers said the stake was likely to be sold at 7-8 percent of the value of the assets under management.

"That is (valuation) the final bone of contention. The finer details are being worked out," one banker said.

In November last year, Indian financial services firm Religare Enterprises Ltd (RELG.BO) agreed to buy Lotus Mutual Fund, a unit of Singapore state investor Temasek [TEM.UL] and London-based Sabre Capital, for about 1-2 percent of Lotus's assets, according to media reports.

UTI was expected to command a higher valuation given its rank, branch network and profitability, bankers said.

"UTI is gunning for a strategic partner rather than a private equity investor at this point," a banker said, but declined to elaborate.

UTI's chief marketing officer said in January the firm, which has the largest branch network in India with presence in more than 500 districts, was interested in a partner that could give it access to the world market.

State Bank of India (SBI.BO), Punjab National Bank (PNBK.BO), Bank of Baroda (BOB.BO) and Life Insurance Corp of India, all state-run, own 25 percent each of the UTI Asset Management. (Editing by Ranjit Gangadharan)