UPDATE 1-Japanese drugstores MatsumotoKiyoshi and CocoKara agree to full merger

(Adds deal terms, background)

TOKYO, Feb 26 (Reuters) - Japanese drugstore firms MatsumotoKiyoshi Holdings and Cocokara Fine Inc said on Friday they agreed to fully merge, after forming an alliance last year to cope with fierce price competition and rising labour costs.

MatsumotoKiyoshi had bought 20% of Cocokara Fine for 38.4 billion yen ($362 million) last year, and had also flagged an eventual full merger.

Under the latest agreement, each share in Cocokara Fine will be exchanged for 1.7 in MatsumotoKiyoshi. Cocokara Fine shares are due to be delisted on Sept. 29, they said in a joint statement.

The companies said their combined scale of around 3,000 shops and more than 1 trillion yen in sales will help with logistics costs and give them greater leverage in purchasing supplies. ($1 = 106.1700 yen) (Reporting by Ritsuko Ando; Editing by Jacqueline Wong)