"The government has in principle given the go-ahead to the China Eastern and Singapore Air deal. The two sides will sign an agreement over the weekend," one source close to the talks between the two companies said.

A second source confirmed that China Eastern had won approval for the long-expected tie-up, adding the Chinese carrier's shares, which have been suspended from trading since May 23, would resume trading next month.

The deal would be the first acquisition of a large stake in one of the big three Chinese airlines by a foreign carrier.

Neither source provided details of the deal.

China Eastern chairman Li Fenghua said in June that China Eastern planned to sell Hong Kong-listed H shares, equivalent to a nearly 25 percent stake, to Singapore Airlines and its majority owner Temasek.

Chinese media reports have valued the deal at roughly USD$1 billion.

China Eastern and Singapore Airlines declined to comment.

Industry analysts say the tie-up could give China Eastern financial backing and access to its partner's extensive global network, while Singapore Airlines could expand its foothold in the fast-growing China market.

Li said in June that China Eastern expected to return to the black for the first half of this year, helped by strong traffic growth and new accounting rules, after posting a year-earlier net loss of CNY1.46 billion yuan (USD$193 million).

(Reuters)