UPDATE 3-LUKOIL trumps Valero for stake in Total refinery

* Deal gives Russian firm a foothold in northwest Europe

* Expects to pay $725 mln for stake in Dutch complex

* Largest U.S. refiner was front-runner for stake (Adds Valero, Dow comments)

By Melissa Akin and Tom Bergin

MOSCOW/LONDON, June 19 (Reuters) - Russia's LUKOIL (LKOH.MM) will buy a stake in a Dutch refinery from France's Total (TOTF.PA), gaining a foothold in northwest Europe and blocking a bid by the largest U.S refiner, Valero (VLO.N), to enter the region.

Friday's deal, which expanded the No. 2 Russian oil company's refining presence in western Europe, coincided with a state visit to the Netherlands by Russian President Dmitry Medvedev.

The Kremlin tacitly encourages Russian companies to invest abroad as a way of increasing its foreign influence.

The move was blow to Valero's efforts to win a stake in Europe, where it has said it wished to buy refineries and take advantage of cross-Atlantic trading opportunities with its U.S. fleet of plants.

Total, which has staked out positions in some of the most prized oil projects on former Soviet territory, hailed a new era in its relationship with LUKOIL, which is 20 percent owned by ConocoPhillips (COP.N).

"Russian crude oil, for which LUKOIL is one of the major suppliers, represents one of the main sources of the Vlissingen refinery," Europe's largest refiner, which retains a 55 percent stake in the plant, said in a statement.

"More broadly, this type of crude oil represents a significant portion for the supply of Total's European refineries."

In Russia, Total holds a coveted stake in state gas export monopoly Gazprom's (GAZP.MM) huge Shtokman gas project in the Barents Sea. It is a LUKOIL partner in the northern Russian Kharyaga field and in Azerbaijan's Shah Deniz Caspian Sea gas field.

Irene Himona, oil analyst at Exane BNP Paribas, said the deal was intended to secure cheaper crude for the refinery.

"LUKOIL is in a position to more or less guarantee crude supplies from Russia, which tend to be cheaper, heavier crudes," she said. "It's supply optimisation (by Total)."

European refiners invest heavily to process more Russian crude and benefit from its discount to lighter, sweeter North Sea oil. Russia's Urals crude was trading at around $70.35 per barrel on Friday, compared with $71 for benchmark Brent <CRUDE/EURO1>.

BLOW TO VALERO