UPDATE 2-MAN unit searched as parent finds no slush funds

* MAN Ferrostaal says it is not target of probe

* Three suspects arrested in raid

* MAN shares close down 1.7 pct, lagging DAX

(Releads, adds background, share price) MUNICH, July 8 (Reuters) - Prosecutors investigating alleged illegal payments have raided the offices of a unit partly owned by MAN SE (MANG.DE), one of Europe's foremost industrial players, a spokesman for the Munich State Prosecutors Office said. The spokesman said officers have conducted searches of MAN Ferrostaal and other "various companies", while the prosecutors office said in a statement searches were also made of private residences of "suspects" it did not name.

The companies are located in the cities of Essen, Geisenheim, Hamburg and Cuxhaven "among others", the statement said.

Three people were arrested, it said.

MAN sold most of MAN Ferrostaal last year but it still owns a 30 percent stake in the company. The other 70 percent belongs to Abu Dhabi-based International Petroleum Investment Company (IPIC).

MAN said in May that its Munich offices as well as those of its truck unit MAN Nutzfahrzeuge, and the branches of its truck and bus subsidiaries in Germany were searched on May 5 by the Munich State Prosecutor's Office as part of preliminary investigations.

MAN had said that according to the public prosecution office, there were grounds to suspect that between 2002 and 2005 hidden commissions of around 1 million euros ($1.39 million) were paid in Germany and several millions more in other countries in connection with sales of commercial vehicles.

MAN itself posted sales of around 15 billion euros last year as a supplier of trucks, buses, diesel engines and turbine machinery.

PAYMENTS CENTRE ON SEAGOING TUGS

The Munich State Prosecution Office said in a statement on Wednesday's searches that "based on existing information now available, there is a suspicion that illegal payments were made in connection with contracts for the construction of seagoing tugs".

A spokesman for MAN declined comment on Wednesday's searches and while a spokesman for MAN Ferrostaal said: "The subject of investigation is neither MAN nor MAN Ferrostaal."

"MAN Ferrostaal is just a witness and not an accused," the MAN Ferrostaal spokesman said.

MAN said earlier on Wednesday it has not unearthed any slush funds so far as part of an investigation into whether it used bribes to win business.