UPDATE 1-Intel Capital says to invest $12 mln in SMG unit

(Updates with company confirmation, details)

By Sophie Taylor

SHANGHAI, April 10 (Reuters) - Intel Capital said on Thursday it will invest $12 million in a unit of Shanghai Media Group, China's second-largest media group by revenue, to develop an online TV service in the country.

Intel Capital, which this week announced a new $500 million China investment fund, will collaborate with Shanghai Media Group Broad Band on technology research and product development of an online TV platform, the companies said, confirming what two sources familiar with the deal told Reuters earlier on Thursday.

"Our past experience has proven that Chinese new media, represented by broadband online TV, is transforming the traditional media industry," Li Ruigang, president of SMG, said in a statement.

Shanghai Media Group Broad Band operates audio and visual programmes over the Internet.

China had 69.8 million broadband Internet users by the end of February, according to China's Ministry of Information Industry.

China had around 210 million Internet users at end-2007, according to China Internet Network Information Center, and by some estimates is now the world's largest Web market, surpassing the United States.

Intel Capital, the investment arm of Intel Corp (INTC.O), on Tuesday announced a $500 million China investment fund, aimed at wireless broadband, media telecommunications and clean technology companies.

Intel's China fund has already announced investments in Holdfast Online Technology Co -- which allows Internet users to play games over a network -- and video equipment maker Newauto Video Technology Inc.

The Intel Capital China Technology Fund II came after the company's first $200 million China Technology Fund in 2005, its largest single-country technology fund at the time.

Earlier this month, Intel Capital agreed to invest $65 million in Taiwan's Powertech Technology Inc (6239.TW), the world's biggest memory chip packager.

Since 1991, Intel Capital has invested more than $7.5 billion in about 1,000 companies in 45 countries. (Reporting by Sophie Taylor; Editing by Edmund Klamann)