UPDATE 1-EU clears Sappi to buy M-real graphic paper unit

(Adds reason for approval)

BRUSSELS, Oct 31 (Reuters) - South Africa's Sappi Ltd (SAPJ.J) won permission from EU competition authorities on Friday to buy the loss-making graphic paper business of Finland's M-real Oyj (MRLBV.HE).

The sale, for 750 million euros ($958.3 million) including the struggling unit's debt, is a big first step towards a long-awaited European paper industry consolidation.

The Commission said the two companies' activities mainly overlap in the production of wood free coated paper, which is used for commercial printing when a high quality is required.

"The Commission's market investigation showed that after the transaction customers still would have a choice between several significant alternative suppliers for wood-free, coated paper like Lecta, Stora Enso, Burgo, UPM-Kymmene, Arjowiggins and some smaller paper manufacturers," the European Union executive said in a statement.

"Other overlaps brought about by the proposed transaction for coated mechanical paper and wood-free uncoated paper are minor. Therefore the Commission concluded that the merger would not have an adverse effect on competition," the executive said. (Reporting by Bate Felix; Editing by Huw Jones)