German utility E.ON plans to buy 10 percent of Brazil's MPX Energia , embarking on a $10 billion (6.5 billion pounds) joint venture to build South American power plants as growth slows at home, sources told Reuters on Tuesday.

Dusseldorf-based E.ON, the largest publicly traded German utility, plans to spend 1 billion reais (359 million pounds) to buy the stake in MPX, a Rio de Janeiro-based power and mining company, two Brazil-based executives with knowledge of the deal said, speaking on condition of anonymity.

MPX is controlled by billionaire Eike Batista, Brazil's richest man.

In a planned 50-50 joint venture, E.ON and MPX would spend an additional 18 billion reais to build coal-fired and natural gas-fired power plants in Brazil, the sources said.

Basically any investment in Brazil right now is better than an investment in Europe; even a bank in Europe pays zero percent interest, said Adriano Pires of the Brazilian Infrastructure Institute, an energy think tank in Rio. E.ON is about the only major European (utility) company without a presence in the Brazilian market.

The transaction would mark the latest coup for Brazil's highest-profile industrialist, helping Batista fund expansion by his EBX conglomerate, whose interests range from power plants to oil, gas, shipping, mining and ports.

For E.ON, the bet on Brazil would give it entrance to Latin America's biggest economy and a nation of nearly 200 million people, where electricity demand is growing almost 5 percent a year, or 10 times faster than in Germany.

The joint venture would start by building plants in the states of Rio de Janeiro and Maranhão, two of Brazil's key commodity processing and export centers, the sources said. Additional investments could be made in Chile, which needs to supply its energy-hungry metals industry, they added.

Spokesmen for E.ON and MPX declined comment. The sources told Reuters the deal will be announced soon.

With an estimated investment of around $5.6 billion by E.ON, the venture could be Batista's largest-ever foreign deal. In 2008, he sold Brazilian iron ore assets to Anglo American Plc for $5.5 billion.

Batista, a German speaker whose mother was born in Hamburg, studied engineering in Germany and maintains close ties there.

MPX holds existing licenses to build 11,000 megawatts of power plants, equivalent to around 10 percent of Brazil's existing installed capacity. The planned joint venture would allow E.ON to participate in half of that growth.

They (E.ON) have been targeting non-European Union growth, and this looks in line with the plan, said Benita Barretto, a London-based analyst at Berenberg Bank.

E.ON had already earmarked around 6 billion euros ($7.6 billion) for expansion in developing countries including Brazil, Turkey and India, Barretto said.

A significant move with MPX Energia would account for quite a substantial part of this.

E.ON's investment in MPX could boost the Brazilian company's capital by around 1.4 billion reais if minority shareholders exercised their tag along rights to buy stock on the same terms, the sources said.

MPX shares erased losses in São Paulo shortly after Reuters reported the pending deal, trading as much as 3 percent higher. By late afternoon, the shares had given up gains and were trading 0.72 percent lower, whereas most other Brazilian utility shares were down more than 1 percent. <.iee>

E.ON shares rose 0.5 percent on Tuesday in Frankfurt.

According to Thomson Reuters data, MPX had a market value of 6.75 billion reais on Tuesday.

LOOKING ABROAD

E.ON has been looking for ways to offset the decision by German Chancellor Angela Merkel to exit nuclear power production permanently after the Fukushima disaster in Japan last year.

Chief executive Johannes Teyssen said in December the company would soon expand into new markets outside of Europe.

The company suffered a setback last month when it lost a bid for Portugal's stake in giant utility EDP , which would have given it exposure to Brazil.

Over the past year, Germany has been losing ground in both power generation margins and gas sales, which has hit E.ON hard and triggered cost and job-cutting programs.

The company is expected to report its first-ever annual net loss for 2011.

In emerging markets, total electricity consumption should more than triple by 2030, rising to 43 percent of world demand from 27 percent now, according to the United Nations' International Atomic Energy Agency.

MPX and E.ON plan to work together to build a coal-fired power plant at Rio de Janeiro's planned Açu Port, and later a natural gas-fired plant in the same complex, the sources said. They also plan to build a natural gas-fired power plant at the Parnaíba complex in the northeastern state of Maranhão.

(Additional reporting by Jeb Blount in Rio de Janeiro and Christoph Steitz, Tom Kackenhoff and Edward Taylor in Frankfurt; Writing by Joshua Schneyer; Editing by Todd Benson and John Wallace and Gerald E. McCormick)