By Fang Yan and Edmund Klamann

SHANGHAI (Reuters) - China's Tengzhong may finalize a deal with General Motors Co <GM.UL> as early as next week to acquire the U.S. automaker's Hummer brand, a source familiar with the deal said on Friday.

The deal would mark the first major Chinese acquisition of a distressed U.S. auto asset during the current economic downturn. Chinese regulators will decide whether to approve the plans after the deal is finalized, the source said.

Sichuan Tengzhong Heavy Industrial Machinery has been in detailed negotiations with GM since it announced a plan in June to acquire the rights to the premium off-road Hummer brand from its U.S. owner.

"Tengzhong executives have been traveling between the U.S. and China in the past months and more will arrive in Detroit soon," said the source, who was not authorized to speak to the media about the deal because of its sensitive nature.

"If there are no big surprises, an agreement could be finalized next week," the source added.

Tengzhong declined to comment. GM representatives in China and the United States could not immediately be reached for comment.

Tengzhong is expected to retain Hummer's existing senior management and operational team as it previously promised, the source said.

It will also keep the dealership network of the U.S. sport utility vehicle unchanged, added the source. Hummer is currently sold in more than 30 countries, including China.

OVERSEAS ATTEMPTS

GM and Tengzhong have said they will not disclose the financial terms of the deal. But bankers familiar with the situation have said Hummer could fetch about $100 million of cash in addition to other commitments -- far less than the $500 million GM had expected Hummer to bring when it went on a sale in June 2008.

Under the deal, Tengzhong would enter into a long-term contract assembly and key component and material supply agreement with GM.

Hummer would contract to build the H3 model SUV and the H3T pickup truck at GM's plant in Shreveport, Louisiana, through at least 2010. It would also fund future vehicles for Hummer and invest in alternatives to the heavy gas-guzzling engines that are the hallmark of the brand.

Tengzhong, a little-known machinery maker based in land-locked southwest China, raised eyebrows when the Hummer deal first came to light nearly three months ago.

Tengzhong's lack of experience in the car industry stirred doubts while state media said the Chinese government would likely harbor objections to taking over a gas-guzzling SUV.

However, opposing voices have quieted down in recent weeks after China's commerce ministry sounded a more positive note on the deal, saying Tengzhong's move was normal for a company seeking to take advantage of the global downturn.

China's National Development and Reform Commission and the commerce ministry, which have authority over the deal, are reviewing documents submitted by Tengzhong, state-owned Xinhua news agency said earlier this week.

Chinese auto companies have attempted several overseas acquisitions in recent years with mixed results.

SAIC Motor Corp <600104.SS>, China's biggest automaker, has successfully launched a mid-range sedan line, the Roewe, developed on the basis of technologies acquired from defunct British car maker MG Rover.

But a huge writeoff for its 51 percent holding in loss-making South Korean unit Ssangyong Motor <003620.KS>, which has been in court receivership since February, dented its bottom line in 2008 and the first six months of this year.

Beijing Automotive Industry Holding Corp failed to get into the final race for GM's Opel unit, although it submitted a bid along with Belgian investment group FHJ International <RHJI.BR> and a consortium led by Canada's Magna International <MGa.TO>.

(Additional reporting by Soyoung Kim in Detroit; Editing by Steve Orlofsky)