A completed deal would also mark the first major acquisition of distressed U.S. auto assets in the global downturn by Chinese firms seeking to acquire high-profile names and Western technology.

"GM and Tengzhong may close the deal as early as today," the source with knowledge of the talks told Reuters. GM declined to comment and Tengzhong could not be reached immediately for comment.

The Hummer sale is part of a drastic restructuring plan by the Detroit auto maker, which also involves the disposal of its Saab, Opel and Saturn operations as part of a government-sponsored bankruptcy recovery plan.

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

Tengzhong still needs approval from the Chinese government, including the Ministry of Commerce, which industry and government officials say holds the ultimate authority over the deal.

"I think the Tengzhong-Hummer deal is very likely to go through as commerce ministry officials had said repeatedly that overseas acquisitions would be rational behaviour amid the global financial crisis," said Yi Junfeng, an analyst with Changjiang Securities.

AUTOS GO WEST

Many of China's fledgling automakers, including Geely Automobile Holdings, are keen to establish a global profile and secure quick access to technology, and are taking a look at established global brands put up for sale by industry giants struggling to survive the recent slump.

They have often confronted obstacles to buying nationally prominent overseas names, however, with media reporting of opposition in Sweden to a sale of Ford Motor's Volvo car unit to the Chinese. Geely had in September confirmed its interest in the Swedish brand.

Other Chinese industries have also confronted problems in their efforts to acquire Western brands and assets.

Deals for sensitive U.S. technology and energy assets have been derailed by political opposition, with even the successful $1.25 billion purchase of IBM's PC business by Lenovo Group in 2005 running into issues. The U.S. State Department limited the use of thousands of computers purchased from Lenovo due to security concerns.

Tengzhong, which harbours ambitions to break out of its southwest China base where it makes infrastructure equipment, is expected to retain Hummer's existing senior management and operational team, saving more than 3,000 U.S. jobs, according to terms of a preliminary agreement.

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

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 sale in June 2008.

It would also be the first successful purchase of a famed Western auto brand by a Chinese company following recently aborted acquisition attempts by other Chinese auto groups, including Beijing Automotive Industry Holdings' (BAIC) failed bid for Opel.

BAIC was shut out of GM's discussions with other bidders for Opel but later reached a tentative pact to take a minority stake in Swedish luxury sports car maker Koenigsegg, which had struck a deal to take over loss-making Saab from GM.