Financial investors may buy Vattenfall grid-sources

*Vattenfall in exclusive talks to sell German grid- sources

*Selects group of financial investors for talks -sources

*Group has Goldman Sachs, Deutsche Bank, Allianz - sources

*Group bids at least 500 million euros - sources

By Peter Dinkloh and Philipp Halstrick

FRANKFURT, July 12 (Reuters) - A financial investor group has emerged as the final candidate to buy Vattenfall's German power grid in what would be one of the few European infrastructure deals this year, people familiar with the matter said.

A group consisting of the infrastructure funds of Goldman Sachs (GS.N), Deutsche Bank (DBKGn.DE) and Allianz (ALVG.DE) is in exclusive negotiations with the Swedish utility, three people familiar with the matter told Reuters.

The people asked not to be identified because the negotiations are confidential. Vattenfall declined to comment.

The group is bidding at least 500 million euros ($697 million) for the 9,700 kilometers of long-distance power lines in eastern Germany, according to the three people. [ID:nL5620898]

"The consortium's strength is in the financing," said one person. "It's not just about the sale price, it is also about being able to shoulder upcoming investments."

So far, difficulties in raising money due to the financial crisis as well as uncertainties about the economy have hampered investors from buying infrastructure in Europe.

The few deals to happen this year include Citigroup (C.N) gaining control of Spanish toll-road firm Itinere ITIE.MC for 2.9 billion euros but other transactions, such as the sale of Gatwick airport, have been delayed.

Vattenfall Chief Executive Lars Josefsson said that he planned to sell the grid in the fourth quarter, at least 14 months after starting the divestment process.

The 3-party consortium would be the first financial investor to run vital energy infrastructure that ships power to industry and distributors in Germany, Europe's largest economy and the continent's biggest power market.

Vattenfall's grid is the backbone for the supply of power to 18 million Germans.

Any buyer must be able to shoulder some 3 billion euros of mandatory investments in coming years to connect the Vattenfall grid with power stations, including windfarms in the Baltic Sea.

Several regulatory issues still have to be sorted out with the Federal Network Agency, the government watchdog, two of the people said. "That will take a couple of months," said one.

In the course of the Vattenfall sale, bidders including Italy's Terna (TRN.MI), Belgium's Elia and Czech group Ceps, all operators of transmission networks, have dropped out, according to people familiar with the matter.

Other interested parties which quit the auction include Macquarie (MQG.AX), Babcock & Brown BNB.AX, Kohlberg Kravis Roberts [KKR.UL] and Global Infrastructure Partners (CSGN.VX) (GE.N), sources have told Reuters.